RCEP is opposed vehemently from the dairy sector. What are the concerns of the dairy industry against the RCEP deal?

India is the largest producer of Milk. Milk provides for an alternative income for farmers. Milk also provides the animal protein/fat requirements of a significant portion of the population that is vegetarian.

India and Trade in Dairy Products

Till the eighties, India used to import up to 50,000-60,000 tonnes of skim milk powder and 10,000-15,000 tonnes of butter oil annually. Over the last few decades, there was a sustained increase in the production and India has become self-sufficient, or even marginally surplus. The dairy product exports have surpassed imports in most years during last decade and one reason for India’s imports being low is the high tariffs, especially on milk powder (60%) and fats (40%).

Concerns of Dairy Industry

The industry fears that if dairy products are covered under an RCEP deal, India would be forced to allow members of the bloc greater access to its market through phased duty reductions or more liberal tariff rate quotas (TRQs).

There is an already existing TRQ for milk powder, which enables import of up to 10,000 tonnes per year at 15% customs duty, and quantities beyond that at the regular rate of 60%.

The Indian dairy industry is resisting any enhanced TRQs or other import concessions, even if extended only to RCEP countries, as opposed to the US or European Union.

RCEP and Dairy Trade

Australia and New Zealand are the biggest players in the global dairy trade. Their exports are more concentrated in value-added products like milk powder, butter. In contrast India is beginning its journey with the value-added products.

In India milk is a ‘superior’ food with income elasticity of demand greater than one .i.e. as incomes rise, the demand for milk goes up even more. The moment families experience some upward mobility, they are likely to put desi ghee (butterfat) rather than vanaspati (vegetable fat) on their rotis.

Hence India is the world’s biggest market for milk and milk products which will only grow with rising incomes and high elasticity of demand. Access to this market will obviously benefit the predominantly export-oriented dairy industry of New Zealand and Australia.

Phase-out Domestic Industry

What New Zealand and Australia are eying is the Indian market for commodities, viz. milk powder and fat. That is where the volumes are. They want to reciprocate what Malaysia and Indonesia successfully did in palm oil, as did Argentina and Brazil in soyabean oil and Ukraine in sunflower oil.

Hence it is feared that RCEP could end up doing same to dairy what the free trade agreement with the ASEAN did in palm oil.