A RECENT policy paper on ‘Import of milk and whey powders in Pakistan’ defines how these imports are slowly destroying the local dairy sector, contributing to rural poverty and playing havoc with people’s health.

Authored by the Centre for Applied Policy Research of University of Veterinary and Animal Science, the paper maintains that the local dairy sector has been on a decline for the last four years. “The upward trend of investment in the dairy sector continued till 2013 and has since been declining, bringing the sector to the verge of devastation due to non-enabling environment”, the report says.

It holds three causes responsible for the slide. The absence of high customs duty and the low price of milk powder in the international market enabled dairy processors to heavily import powder instead of purchasing fresh milk from local farmers. It says that imports of these powders go up and down with international price fluctuations. “For example, when the price was low at 2,300 euros per tonne in 2012, around 39m kilogrammes of skinned milk powder (SMP) was imported.

In 2013, the price hit 4,200 euros, and imports came down to 18.8m kilogrammes. In 2014, the price decreased to 2,000 euros per tonne and import surged to 30.4m kilogrammes.

In 2015, the price slid to 1,600 euros per tonne and imports jumped to 44.20m kilogrammes.”

This influx of milk powder not only enabled processors to replace fresh milk purchase but also to invade the informal and unorganised loose milk market. The local milk sellers started fabricating milk using SMP, whey powder (WP), fertilisers and other prohibited ingredients. Thus, both formal and informal sectors jettisoned fresh milk purchase and fell back on powders.

The influx of milk powder not only enabled processors to replace the fresh milk purchase but also to invade informal and unorganised loose milk market

Simultaneously, an increasing trend for tea whiteners and dairy liquids further reduced the demand for fresh milk. Since these recipe products (other than milk) are made with skimmed milk and whey powders, they cost far less than raw milk.

Precisely because of this reason, the share of recipe products in litre terms went up to 59pc — bringing fresh milk’s share to only 40pc — in open market in 2015. It ultimately deprived the farmers of a better price for their product and their market share.

On the third plank, the same trend also spread to the confectionary industry which, following others, shifted to cheaper and low quality SMP and WP, replacing the local raw milk.

While damaging dairy farmers, the situation adversely affects the consumers’ health too, who are buying a synthetic product in the name of milk.

The farmers went into the panic sale of milking animals — as documented by the Punjab Livestock and Dairy Development Department. “This is an alarming situation as it is likely to impact the overall socio-economic balance in the rural areas.”

The fluctuating prices of milk powders caused by subsidies and low import duty resulted in the dumping of powders in Pakistan. As a consequence, the farm gate milk prices have seen, very little increase as compared to consumer prices for ultra-high temperature (UHT) treated milk.

Small farmers have been adversely affected by the increasing cost of production and little or no increase in the milk sale price.

Investment in dairy farming decreased considerably between 2013 and 2016. Many commercial operations suffered a crisis during the same period or closed own.

This is likely to make Pakistan milk deficit, increase rural unemployment and pose food security risks, especially for child nutrition.

Recommending a way forward, the paper says farmers have long been demanding a higher duty on skimmed milk imports. In the last budget, the government increased the duty from 20-45pc.

Te report suggests, “It is, thus, urgently required that the government increases duty on import of whey and milk powders to 100pc. India has increased it to 65pc duty, whereas Turkey levies it by 180pc duty to protect their farmers.

“Sales tax should immediately be removed, turning the sector to zero-rated rather than the exempted category. The government and its agencies should take steps to create awareness among consumers about differentiation between milk and recipe products.

“Finally, a very serious effort should be undertaken by all agencies concerned to regulate the local milk market.”

Published in Dawn, The Business and Finance Weekly, June 12th, 2017