Sunday, August 10, 2008


The recent announcement of a fiscal policy by Karnataka Government to provide Rs 2 per liter to milk producers as an incentive to raise production in the state raises more questions than answers. It is a season for subsidies with the largest give away by any government in the history of independent India through the loan waiver scheme announced in the recent budget by the Union Finance Minister estimated at Rs 60000 crore, supposed to alleviate the debt burden of the farmers. The spate of suicides by farmers in different parts of the country was attributed to the debt trap they were in due obviously to uneconomic and nonviable farming operations prevalent in the country. This is besides the massive subsidies being extended to the agriculture for fertilizers and to the consumers through the public distribution system. One of the reasons for the collapse of trade talks in Geneva recently was the issue of subsidies being resorted by many countries including rich ones like USA and European Union, to make their farm exports cheaper. In contrast developing countries wanted these subsidies to be scaled down drastically while they themselves retain that right to protect their poor farmers and ensure food security. On top of it, the subsidies on fossil fuels like gasoline in many countries in Asia and Africa has been blamed for the uncontrolled escalation of crude oil prices

As for milk, the great white revolution heralded by operation flood programs during seventies and eighties has made India the top producer of milk in the world to the extent of 100 million tons annually. After the opening of the milk processing to private sector in nineties many players have emerged competing successfully with cooperative sector making available milk any where and every where on demand. Export of milk products was also achieved to a limited extent, the major product being milk powder but no break-through was possible to make India a significant exporter of these products. Probably the critical role milk plays in the nutrition of vegetarians, it being the only affordable and accessible source of high quality protein and calcium, might have made any decision to allow export of milk products in large quantities. The competitiveness of Indian milk in the global context also is a debatable point at present.

How the Karnataka government came to the conclusion that dairy farmers need incentives to raise production is still a mystery. It was reported that the state is already collecting daily 1 crore liters of milk from the milk shed areas through the district cooperative societies at a price approved by the authorities and no one can remember about a milk famine at least during the last one decade. The existing capacity to process milk into products like powder is just adequate to take care of the present production and if the subsidy scheme is implemented as declared officially, the collection is estimated to increase by 100% and what steps are being taken to meet such a contingency are not yet clear. Is there a demand for such increased production within the state or in the neighboring states? The subsidy is expected to be channeled through the procurement agencies in the cooperative sector and how it is going to work without blemish is any body's guess. Is any one sure that the extra Rs 2 per liter is going to end up in the producers' hands or a host of middle men are going to emerge to siphon off this bonanza? Will it create large dairy farms who may find it attractive to take up milk production in a big way like poultry farms? Will there be a retraction of this policy in the short term and what will be its effect on dairying. No one seems to be sure about these uncertainties.

The subsidy will work out to to more than Rs 1500 crore annually if the production doubles eventually and it is a relevant question if such an outflow of public funds is really justified at all. In stead of doling out freebies under the guise of farmer welfare, it would have been much more productive if the amount was spent on more durable projects aimed at creating lasting assets to help the agricultural community. What distortions this will bring out in the economy of the state in general and the milk sector in particular will have to be seen. Many state governments like that in Tamil Nadu are already indulging in populist schemes like distribution of free cooking gas, free TV sets, rice at Rs 2 per kg, free cycles to school going children, feeding programs etc all under the guise of social welfare hiding their political agenda and where such spending spree is going to end up ultimately remains to be seen.


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