India and New Zealand recently concluded Free Trade Agreement (FTA) negotiations, marking a significant step in bilateral economic relations. While the agreement is expected to enhance trade in sectors like electronics, engineering goods, and agriculture, the dairy sector has been deliberately excluded from any duty concessions.

India’s decision stems from its consistent policy approach towards dairy imports. Historically, India has resisted opening the domestic dairy market in trade agreements due to the importance of the sector for rural livelihoods and the need to protect domestic milk producers.

Why Dairy Remains Sensitive

1. Rural Livelihoods:

   • India’s dairy sector provides income to millions of small and marginal farmers, particularly in rural areas.

   • Any surge in cheaper imported dairy products could undermine local producers.

2. Food Security Concerns:

   • Dairy is a staple in Indian diets. Ensuring domestic production remains competitive is crucial for food security.

3. Historical Trade Stance:

   • In previous FTAs with Australia, the EU, and ASEAN countries, India has maintained high tariffs or excluded dairy from liberalization commitments.

Implications for New Zealand

• New Zealand is a leading global exporter of dairy, with significant exports to Asia.

• The exclusion from duty concessions means New Zealand dairy exporters will face standard import tariffs when entering the Indian market.

• This preserves the price competitiveness of Indian dairy products, particularly in milk, butter, cheese, and infant formula.

Benefits for India

1. Protects Domestic Farmers:

   • By maintaining tariffs, India shields domestic producers from competition from highly subsidized international dairy.

2. Maintains Market Stability:

   • Excluding dairy prevents price volatility in the domestic market that could arise from bulk imports.

3. Balances FTA Gains:

   • While India liberalizes trade in other sectors under the FTA, the strategic protection of dairy ensures that sensitive sectors remain safeguarded.

Conclusion

India’s decision to not extend duty concessions to the dairy sector under the FTA with New Zealand reflects a careful balancing act—promoting trade liberalization while protecting domestic agriculture and rural livelihoods.

By maintaining this policy stance, India ensures that the dairy industry remains robust and competitive, even as bilateral trade expands in other key areas.

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