The Ministry of Finance recently approved a grant of Rs 16.09 million to help export milk to India for the next three months to avoid a milk holiday. The grant amount will be utilised to cover the transportation and market rate adjustment costs — which amount to Rs 5.96 per litre — for the milk that will be exported to Patna, India. The government has said that it is a temporary solution to safeguard farmers’ income and urged the National Dairy Development Board — a policy-making body for dairy development in Nepal — to seek a durable solution to avoid a milk holiday. NDDB has floated ideas like bringing Chitwon Milk into operation, and expanding value added tax rebate on milk powder and ghee, among others. Babu Kaji Panta, Executive Director of NDDB, emphasises that a milk holiday has an adverse impact on farmers involved in milk production and also on the dairy industry in the long run. The dairy sector is one of the major industries of the country, which has a contribution of nine per cent to the gross domestic product. Pushpa Raj Acharya of The Himalayan Times caught up with Panta to know more about NDDB’s plan to avoid a milk holiday and what it has been doing to promote the dairy industry in the country. Excerpts:

The Ministry of Finance (MoF) recently approved a grant of Rs 16.09 million to help export milk to India and also urged the National Dairy Development Board (NDDB) to seek a sustainable solution to avoid a milk holiday. What measures has NDDB been planning to avoid such a situation?

Exporting milk to India is a temporary solution to safeguard the income of farmers and the government will not extend a grant for milk export the next time. This situation arose after Chitwon Milk, one of the largest dairy plants of the country, shut down its operation on August 17, citing that it incurred heavy loss due to cheaper imports of various dairy products. We are seeking options to avoid a milk holiday for another three months until the situation gets better. In this season, due to the easy availability of cattle feed (like green grass) the production of milk increases, which we call the flush season and this continues till December. We are committed to avoiding a milk holiday, which has an adverse impact on farmers involved in milk production as they face income shocks. We have not faced a milk holiday since 2006 after the establishment of private dairy plants with larger production capacities. We have attracted farmers to milk production after a lot of hard work so we are seeking a solution to avoid a milk holiday and have presented some options to the Ministry of Agricultural Development (MoAD). Apart from milk export, we have also been looking into ways on how we could increase domestic milk consumption. Some of the ideas that we have presented are raising value added tax (VAT) rebate on skimmed milk powder and butter/ghee products, and proper valuation of butter/ghee and milk powder imported from India and other third countries. Customs valuation of ghee imported from India is INR 250, which actually costs INR 450 in the Indian market. We have proposed to the MoF through MoAD to raise customs valuation of the product because DDC and other private dairy plants have reported that they have 1,200 tonnes of milk powder and 1,400 tonnes of butter in stock. Lastly, dairy plants can sell skimmed milk powder and butter/ghee at cheaper rates if the finance ministry increases VAT rebate (from 50 per cent to 90 per cent), so that the stock of milk powder and butter could be cleared and dairy plants could utilise surplus milk in producing more milk powder and butter.

What is the actual amount of surplus milk that is going to be exported to India and how will the grant amount be utilised?

Currently, we have a surplus of 30,000 litres of liquid milk every day and it can be exported to India if the Cabinet endorses the grant that the MoF has agreed to provide to sole exporter, the government-owned Dairy Development Corporation (DDC). If other private sector dairy plants want to export surplus milk then they can do so through DDC. The grant amount that MoF has approved will be utilised to cover transportation and market rate adjustment costs, which add up to an additional Rs 5.96 on each litre of milk that we will export to Patna, India. For this, we require a total of Rs 16.09 million for the next three months.

From when will DDC start exporting milk to India?

After the MoF’s approval, the MoAD has sought the Cabinet’s approval to release the grant amount. Without the Cabinet’s nod the finance ministry cannot release the fund because it was not incorporated in the budget for this fiscal year. Once the Cabinet gives a nod to release the grant, milk export will start.

The country used to import milk from India in the past to meet the demand of the festive season. But now we are talking about exporting milk to the southern neighbour by incurring a loss. Can’t we increase domestic consumption?

The current situation has been caused by the April 25 earthquake as consumption has reduced sharply in Kathmandu Valley due to the outflow of people for a long time. A significant reduction (more than half) in consumption has been witnessed after the earthquake struck central Nepal, including Kathmandu Valley that consumes about 70 per cent of milk produced by dairy factories. Though consumption has slumped heavily after the earthquake, dairy plants have not halted milk collection from farmers. Dairy plants have utilised milk to produce skimmed milk powder and butter/ghee. Two dairy plants — DDC and private sector owned Sujal Dairy — have produced milk powder and butter in excess. Surplus milk — about 30,000 litres per day — could be utilised to produce skimmed milk powder and butter, among other products, but production of these products is more than sufficient at the moment. As I mentioned above this problem could have been avoided if Chitwon Milk Pvt Ltd was in operation. If Chitwon Milk comes into operation we will definitely not face a milk holiday because it was involved in the production of various other milk products and it would have utilised the excess milk.

Instead of exporting milk, wouldn’t it be better if NDDB gave a thought to reducing the price of milk during the flush season so that domestic consumption could be increased?

Earlier too, we had discussed about allowing the market to decide the price of milk but farmers opposed the idea. If we reduce the price of milk without consent from the farmers then we will have to compensate the dairy plants for the reduced amount. For example, if we reduce the price of milk by two rupees a litre, then we will require Rs 1.4 million per day as grant for dairy companies because 700,000 litres of milk produced by dairy plants is being consumed every day. Relatively, it will be far better to export 30,000 litres of milk per day for the next three months. If we look at it from the farmer’s perspective, they themselves have made a huge investment to manage their farms. Most of the commercial farmers have taken loans from banks. Similarly, dairy plants also will not be able to bear the losses if the price is reduced. To maintain the situation, the MoF has approved the grant for milk export to India. I believe this decision will be in favour of the farmers. However, exporting milk to India on a long-term basis is not a viable solution. So the government should take the initiative to resume operation of Chitwon Milk as well. If the owners of Chitwon Milk are not willing to open the plant then the government could buy it and ask cooperatives of milk producers to run the plant. In addition, NDDB has also been planning to launch promotional campaigns to encourage people to consume more milk.

Could you please explain about promotional campaigns NDDB is planning?

Milk consumption in the country is very low. A person needs to consume 91 litres of milk per year as per the nutrition requirements, but actual consumption stands at 64 litres. We have enough space to increase consumption of milk. Moreover, only 15 per cent of the total production in the country has been sold to dairy plants, which is about 700,000 litres per day. We will disseminate this message through mass media and organise dairy seminars and festivals to promote consumption of milk and milk products in partnership with the Department of Livestock Services, DDC, Dairy Industries Association, Nepal Dairy Association, and Central Dairy Cooperatives Association Nepal. In addition, we will also encourage farmers to be involved in milk production to meet our future demand.