Center for Applied Policy Research in LivestockUniversity of Veterinary & Animal Sciences, LahoreSyed Abdul Qadir Jillani (Out Fall) Road, Lahore - Pakistan
[email protected] | www.uvas.edu.pk
Policy Paper
IMPORT OF MILK & WHEY POWDERS IN
PAKISTAN
Table of Contents
A. INTRODUCTION......................................................................................................................1
Background.....................................................................................................................1
B. MILK POWDER AND WHEY POWDER IMPORTS................................................................2
1. Import of SMP and WP..............................................................................................................2
1.1. Changing Dynamics of Dairy Industry:............................................................................2
1.2. Powder Import Correlation with International Prices........................................................3
1.3. Powder Imports from India..............................................................................................5
2. Impact of Powder Import............................................................................................................5
2.1. Impact on farm gate prices Vs consumer prices................................................................5
2.2. Impact on small farmers..................................................................................................6
2.3. Impact on investments:....................................................................................................6
2.4. Overall Economic Impact:...............................................................................................7
C. EXAMPLES FROM OTHER COUNTRIES..............................................................................7
How India Safeguard its local dairy farming?...................................................................8
How Turkish Dairy Sector was revolutionized?................................................................8
D. RECOMMENDATIONS & WAY FORWARD..........................................................................9
Potential Benefits of Enhancing Import Duty...................................................................9
E. REFERENCES........................................................................................................................10
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A. INTRODUCTION
BackgroundPakistan is an agricultural country with World’s one of the best irrigation systems, fertile land
and versatile seasons. Agriculture sector contributes about one fourth in country’s GDP and is
believed to be the backbone of the rural economy as it provides employment to 45% workforce
of the country. Livestock is an integral part of the agriculture sector and contributes 55.1% of
the agricultural value added, and approximately 12% in the national GDP. Milk is by far single
most commodity of livestock sector and the value of milk alone exceeds combined value of
wheat, rice, maize and sugarcane in the country.More than 8 million farming families are
associated with livestock sector and majority of them are smallholders and landless. This depicts
the critical dependence of 40 to 50 million rural people on the livestock sector. Selling milk for
meeting day-to-day needs has become a visible phenomenon in the country during last two
decades and hence livestock farming has become vital in generating instant cash flows for the
rural population.
Historically, majority of the livestock farming has been fragmented into smallholders smaller
herd sizes (1-6 animals). As a result of various dairy development initiatives since 2005,
tremendous improvement had been witnessed in dairy farming where commercial and corporate
sector in dairy farming emerged. The country has seen phenomenal growth in investment in
dairy farming during last one decade. The emerging commercial scale farmers had positively
influenced the whole livestock farming sector in terms of transforming practices, sharing modern
knowledge and skills and attracting international service providers. The trend of investment into
the dairy farming continues until 2013 when this growth started declining and has currently been
halted. This has brought tough times to the farmers especially the smallholders.
The livestock farmers have been facing various issues for last few years, that havenot only
decelerated the growth in this sector but have eventually put the livelihoods of 40 to 50 million
people at stake. One of the major issues that has adversely impacted livestock sector is the
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unchecked import of milk powder and whey powder in the country as the duty regime is just
20% for such imports that make it easy to get it dumped in Pakistan.
B. MILK POWDER AND WHEY POWDER IMPORTSIt is pertinent to mention here that import of milk powder and whey powder has severely shaken
the dairy sector stakeholders particularly the producers / farmers. It's worth-mentioning that
Pakistan is considered third largest milk producing country in the world with nearly 50 billion
liters of annual production. However despite of having one of the largest animal populations
base and huge local production of milk, the import of powders indicates the manipulation in the
value chain resulting in net economic loss both for producers and consumers. In short, the dairy
farming sector is at the verge of devastation due to influx of Skimmed Milk Powder and Whey
Powder (SMP & WP) from across the globe. The use of SMP&WP in the dairy processing
industry, dairy related products, biscuits, sweet making, confectionary industry and tea
whitening segment has deprived the local farmers from getting right price of the milk and
eventually triggering the discouraging wave into the developing dairy farming sector.
1. Import of SMP and WPAccording to the United Nations COMTRADE database, Pakistan imported 35 million Kgs
milk powder in 2012 worth 102.1 million $, 22 million Kgs in 2013 worth 70.8 million $
and 34 million Kgs in 2014 worth 117 million $. At the same time, Pakistan imported 19.5
million Kgs, 18.3 million Kgs and 20.2 million Kgs of whey powder in 2012, 2013 and 2014
worth 13.4 million $, 15 million $ and 16.9 million $ respectively.
1.1. Changing Dynamics of Dairy Industry:
From 2007 onwards there has been a shift in focus of Pakistani dairy processors from
selling milk to selling recipe products - made out of SMP&WP and Vegetable fat etc.
These products are generally called Tea Whiteners and Dairy Liquids.
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According to estimation by dairy industry experts, in 2014, the share of recipe
products (other than milk) in liter-age term has gone up to 59% in total UHT sales
while plain white milk is only 41%. Since these recipe products are made using
SMP&WP and vegetable oils; for dairy processor the cost of production of these
products is far below the raw milk prices, which ultimately deprive dairy farmers of a
better price for their raw milk. The below graph represents the historical growth in
UHT sales (million liters annually) and depicts that how the share of other than milk
products have substantially increased.
1.2. Powder Import Correlation with International Prices
It is often propagated that the import of powders is linked with demand and supply
gap in the country, however fact of the matter is that import of powders has a clear
linkage with prices in international market, i.e. when prices are low in international
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market, the import increases substantially and vice versa. For example when price was
low at 2300 Euro per Ton in 2012, about 34 Million Kgs of Skimmed Milk Powder
(SMP) was imported in Pakistan while in 2013 when price went up to 4200 Euro Per
Ton, the import of SMP decreased to 22 million Kgs. In 2014, the price again went to
the lowest 2000 Euro per Ton, and the SMP import again jumped to 35 million Kgs.
The below chart further clarifies the direct correlation of import quantities and
international prices both for milk powders and whey powders.
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1.3. Powder Importsfrom India
During last few years, import of powder from India has drastically increased in
Pakistan. Most importantly, it is estimated that a handsome share also gets smuggled
from India to Pakistan which doesn’t have any official recording.
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2. Impact of Powder ImportIn last few years import of SMP especially from India has increased drastically and some of
the local milk sellers have started to fabricate the milk using SMP&WP, fertilizers and other
prohibitive ingredients. Confectionary and sweat makers have shifted to cheaper and low
quality SMP&WP replacing local raw milk.The fluctuating prices of milk powders in
international market coupled with subsidies and other factors and complemented with low
percentage of import duty (20%) results into dumping of these powders in Pakistan.
2.1. Impact on farm gate prices Vs consumer prices
Over the years the farmer is deprived of the right price of milk considering the end
consumer prices. In last five years, the increase in Farm Gate Prices to farmers has
been less than Rs. 10 per liter while per liter consumers price of UHT milk has gone
up by minimum Rs. 40; for a pouch of pasteurized milk Rs. 25; for bottled or carton
packed pasteurized milk by Rs. 45. The Price of both tea whitener and dairy liquids
hasgone up by Rs. 15. This clearly shows that despite of the stagnant raw milk prices,
no benefit has been passed on to the consumers. It is unfortunate that the incremental
difference for the consumers has not yielded any benefit for the producers as well.
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2.2. Impact on small farmers
In last five years, the cost of production for a dairy farmers has increased at an
average of 10 to 15% per annum, while farm gate price increased by less than 5%.
Milk purchasers are paging farm gate prices with the milk fabricated by use of
SMP&WP. Some of the milk purchasers have reduced their milk procurement
drastically as they use SMP&WP instead. This whole situation has put the livelihoods
of millions of families at stake. This severely affects the local livestock farmers whose
majority is small-scale, landless and is completely dependent on milk sales. It is
important to realize that the discouraged farmers are leading towards evaporation of
livestock farming.
2.3. Impact on investments:
In last two three years many commercial farms sized 50-300 have closed down
depriving the investment opportunities. At the same time, no new corporate group
hasmade investment into dairy farming since 2013. Below graph represent how the
corporate sector investment in dairy farming has decelerated and is stagnant. Planned
investments in expansion of existing dairy farms have been withheld and existing
farms have entered into survival war mode
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2.4. Overall Economic Impact:
If the situation continues and necessary actions are not taken, this is very soon going
to lead Pakistan into deficit of food items including milk and meat, question-marking
the food security of the growing population in the country. On the other hand it will
lead into massive gradual unemployment of the rural population and eventually result
in rural to urban migration. This chronic situation, if not given due attention right
now, can badly disturb the overall equilibrium of the Pakistani society.
C. EXAMPLES FROM OTHER COUNTRIESExamples from other countries can significantly help in understanding the approach towards this
issue. Below are examples from India and Turkey.
How India Safeguardits local dairy farming?In order to safeguard the interest of local dairy farmers in India, the Government of India
has imposed 65% import duty on the powder imports besides devising strict quality and
hygiene parameters that importers have to comply with. This step has significantly
helped Indian dairy farming sector to boost up and bring prosperity in rural areas. It's
also important to mention that farm inputs are also subsidized in India and are much
cheaper for the farmers. Below is a comparison of various farm inputs both in India and
Pakistan in Pak Rs.
As a result of these steps, India's export of powder increased from 0.18 million Kgs in
2011 to 152 million Kgs in 2013.
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How Turkish Dairy Sector was revolutionized?Turkey decided to revolutionize its dairy sector and imposed 180% import duty on milk
powders. As a result of this step, huge investments were made in dairy farming locally as
much as that over 1.2 million animals were imported between 2009 and 2013.
Subsequently, the milk powder imports dropped to almost negligible quantities. Below
graph reveals the aforementioned phenomenon.
D. RECOMMENDATIONS& WAY FORWARDIt is high time that the policy makers realize the severity of the issue and take necessary steps to
avoid severe long term consequences. It is suggested that Govt should immediately increase
import duty on milk and whey powder to 100% to ensure that local milk production gets boosted
and assure long term food security in the country.
Potential Benefits of Enhancing Import DutyIt is anticipated that enhancing import duty on milk and whey powder shall yield
following benefits.
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- It will revive the local dairy farming sector leading towards rural economic
development and poverty alleviation.
- Investment in commercial and corporate sector will resume and bring more
employment opportunities
- Local milk production will boost up ensuring medium to long term food security
while enhanced sustained supply of milk will also ensure the prevention of potential
milk deficit as well as potential inflation in long term.
- Milk is considered one of the most nutritious food items. Local milk boosting will
ensure addressing the chronic issue of malnutrition in children that has already
reached to the dangerous levels. It is also suggested that school milk programs shall
be initiated with focus on regional production and consumption. This on one hand
will help in providing nutrition to the kids while on the other hand it will help in
economic development of the rural areas.
- Adulteration and malpractices in the dairy value chain will be curtailed ensuring safe
and healthy milk for the consumers at affordable price.
E. REFERENCES- United Nations Comtrade
- International Trade Statistics
- Duty Calculator
- Mother Dairy India
- Indian Custom Tariffs
- CLAL Italy
- Pakistan Dairy Association
- Corporate Dairy Farmers Association
- Market Sources
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11University of Veterinary & Animal Sciences, Lahore | www.uvas.edu.pk
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