Who moved Mozzarella cheese and ghee into the PLI scheme for dairy ?

We are the world’s largest producer of milk, oilseeds, pulses, cotton, mangoes, papayas and bananas.  Globally, India is the second-largest producer of rice, sugar, tea, vegetables and fish also. This makes food processing   a priority sector  for the policy makers. .The Union Cabinet chaired by the Prime Minister, Shri Narendra Modi has given its approval to introduce the Production-Linked Incentive (PLI) Scheme in the  10 key sectors. This scheme is for Enhancing India’s Manufacturing Capabilities and Enhancing Exports – Atmanirbhar Bharat. Food processing as one of the most important sector has received an allocation of Rs 10900 Crores under this scheme. Priority food products mentioned under this sector are as follows :

1. Ready to Eat / Ready to Cook (RTE/ RTC)
2. Marine Products
3. Fruits & Vegetables
4. Honey
5. Desi Ghee
6. Mozzarella Cheese
7. Organic eggs and poultry meat

The growth of the processed food industry leads to better price for farmers and reduces high levels of wastage. Specific product lines having high growth potential and capabilities to generate medium- to large-scale employment have been identified for providing support through the PLI scheme.

PLI scheme

According to the scheme, companies that make selected products  will get an incentive of up to a certain per cent (e.g 6% for mobile phones) on incremental sales of all such products  made in India. These incentives will be linked with incremental production of the product category. It will be verified through gst and exports details for the year under consideration. This scheme is meant for greenfield projects only in the selected sectors and product categories.

Now let us examine the impact of this scheme on the dairy sector.  Mozzarella cheese and ghee have been identified as the two anchor products from the dairy sector under this scheme. The selection of these two products has once again highlighted the pure disconnect of policy makers from the industry.

Observations

Let me share few quick observations as follows : Mozarella Cheese  a. Mozzarella cheese primarily is considered to be best made using buffalo milk for value addition , but is being made majorly by using cow milk . Thus the Indian strength of buffalo milk is not being harnessed well.b. The state with largest installed capacity for mozzarella cheese manufacturing   has incidences of minimum milk prices and maximum farmers suicide. c. Mozzarella cheese is more of a B2B product for the Hotels and restaurants industry rather than a B2C segment. During Covid we have learnt that Horeca is one of the most impacted segments under a pandemic situation.d. Large number of players and brands are manufacturing analogues under the mozzarella cheese category by using Palm oil and other soy protein substitutes.

They are using similar nomenclature as that of dairy based cheese products. An amendment to the regulation on this is under review and might get implemented from early next year. The investment under this product category however doesn’t ensure 100 % output as dairy based.  

Ghee

a. Ghee is not a dairy product. It is by product. Selection of ghee under PLI looks vague as manufacturing of ghee may not require a manufacturer to procure milk from the farmers. He could do it by purchasing,cream, butter, ghee, butter oil from others and could disturb the markets of others by being competitive using the PLI. b. Currently the regulatory standards of ghee are completely compromised and more than one fourth of the available ghee in the market mixed with palm oil . An amendment to the regulation on more robust ghee standards are under review and might get implemented from early next year.

c. The industry is already under pressure from the low priced adulterated ghee and huge stocks of ghee due to lockdown. Ghee is such a basic product both for the farmers and the consumers. It’s a necessary evil for the dairy industry as it is a by product while making other value added milk products. All stakeholders are requesting removal of gst from butter and ghee or at least reduce it from 12% to 5%. As one of the objectives of the government is to generate this incentive from the incremental gst at their end which would not have been possible without charging higher gst on selected products. This scheme thus indirectly is confirming that the government is in no mood to reduce gst on ghee at least.

Domestic market winners

In domestic markets fermented milk products, dairy beverages and long shelf life milk products are showing a great traction. There has been a huge growth in whey protein based products in the country which are majorly of imported origin. I feel there must be a selection criteria for bringing products under such schemes. The nature of these schemes is not permanent . The objective of these schemes is to give enough momentum to a selected sector to grow over a period of time. It requires an in depth analysis and multiple rounds of stakeholders meeting to reach out to the relevant product categories within the dairy sector which are at infancy stage today.

3 selection criteria

a. Incremental milk procurement from the farmer’s cooperatives shall also be a criteria apart from incremental production.  I has to be seen in conjunction with the incremental sales in the market.

b. The product under consideration must induce a conversion of demand from unorganised to organised sector e.g products like Khoa, paneer, channa, dahi, lassi, milk based sweets etc

.c. The product must be able to create an import substitute category so as to save on huge foreign exchange flowing out. Products like cheese curd, cream cheese, whey protein concentrates and isolates, caseins and derivatives, etc. The products must also be a winner in exports in growing markets. Though ghee and butter comes under the winner category but most of the times the domestic prices are better than the international prices so their selection for PLI must be done with caution. As discussed earlier, butter and Ghee are by products and commodities and highly fragmented also. In that case they may not make a rational choice for such schemes.

The way forward

Indian dairy sector needs to change the gears now and throttle up with stimulus fuel from the government and destination setting based on wisdom of existing players. It is high time for the government to be inclusive in making the stakeholders sit regularly and decide the fate of the sector. Wishing our dairy sector a scintillating growth with prospering farmers  , growing processors  and consumers capable of spending more on dairy products.  Do share your views on possible products for PLI interventions.