Background
The U.S. government’s proposed reciprocal tariffs, effective April 2, 2025, will make Indian dairy exports to the U.S. uncompetitive. While India is self-sufficient in dairy, consumes as much as it produces, this may be seen as a setback for the major players in an industry that already faces barriers in the European Union due to stringent regulatory requirements. With these new trade restrictions, Indian dairy exporters must identify alternative markets and receive necessary policy support to sustain growth.
Key Challenges the Sector may be Facing
- Loss of Competitiveness in the U.S. – Higher tariffs will lead to decreased demand for Indian dairy, particularly value-added products such as ghee, milk powder, and casein.
- Limited Access to Developed Markets – Indian dairy products do not meet the EU’s sanitary and phytosanitary standards, restricting entry into a major export destination.
- Price Pressures and Surplus Management – Reduced exports may lead to surplus dairy stocks, depressing domestic prices and impacting farmers.
- Supply Chain & Infrastructure Gaps – Lack of cold chain logistics limits India’s ability to export premium dairy products like cheese, yogurt, and probiotic drinks.
Recommendations for Government Action
1. Bilateral Trade Negotiations with the U.S.
- Seek exemptions or reductions on dairy tariffs through diplomatic channels, leveraging India’s trade importance to the U.S.
- Explore mutual recognition of dairy quality standards to facilitate smoother trade.
2. Strengthening Market Access in Alternative Countries
- GCC & ASEAN Expansion: Negotiate preferential trade agreements (PTAs) with Gulf and Southeast Asian nations to enhance dairy exports.
- Australia, UK, and Canada FTAs: Accelerate dairy inclusion in Free Trade Agreements (FTAs) under discussion to access high-value markets.
3. EU Market Entry via Regulatory Alignment
- Establish a Dairy Export Compliance Fund to support industry players in meeting EU residue-free and traceability standards.
- Set up government-backed certification agencies for dairy quality assurance, facilitating EU and other developed market access.
4. Domestic Policy Support for Value-Added Dairy
- Introduce a Production-Linked Incentive (PLI) scheme for Value-Added Dairy (cheese, whey proteins, and probiotic products) to enhance competitiveness.
- Invest in cold chain infrastructure & logistics hubs to support high-margin dairy exports.
- Provide export incentives through the Remission of Duties and Taxes on Exported Products (RoDTEP) scheme to compensate for tariff hikes.
5. Strengthening Farmer and Processor Resilience
- Introduce a Minimum Export Price (MEP) mechanism to prevent over-supply and price crashes in the domestic market.
- Provide subsidies for small dairy farmers to improve milk quality and boost premium product production.
Private Sector Initiatives
While government intervention is crucial, private players in the dairy sector must take proactive steps to mitigate risks and adapt to changing trade dynamics. Leading dairy companies should invest in global partnerships, explore contract manufacturing in tariff-free markets, and develop high-value niche products that can justify premium pricing. Additionally, quality enhancement and digital traceability solutions must be prioritized to meet international food safety norms, ensuring broader access to global markets. Industry collaboration through consortiums can help share resources for market expansion, innovation, and technology upgrades, making Indian dairy globally competitive despite trade restrictions.
Conclusion
The Indian dairy industry, valued at over ₹15 lakh crore, is a critical sector employing millions of farmers and allied workers. Given the impending tariff challenges in the U.S. and existing EU barriers, urgent government intervention is required to protect and expand India’s global dairy footprint. The government and the private sector may come together and act swiftly on these recommendations to safeguard industry interests and ensure sustained growth.
