India’s dairy sector remains a critical part of its agricultural economy in 2025. Despite global pressures, especially from the United States urging India to open its dairy market, India maintains competitive milk prices. This analysis compares India’s dairy competitiveness with the US, Europe and New Zealand. It also examines production costs, farmgate prices, yield differences and the future challenges for India’s dairy industry.
Price Competitiveness of Milk
Indian milk prices at the farmgate are nearly on par with those in the US. Recently, US milk prices averaged around Rs 36.7 per litre. Maharashtra dairies pay about Rs 34 per litre for similar milk quality. This suggests Indian farmers receive competitive returns compared to US dairy farmers. European Union prices are higher, about Rs 55.6 per litre, while New Zealand prices are close to Rs 40 per litre for higher-fat milk but near Rs 35 for standard Indian milk quality. Thus, India’s milk prices are marginally below the US and New Zealand but well below Europe.
Milk Yield and Production Efficiency
Milk yields in India are substantially lower than in Western countries. The average Indian milch cow produced 1.64 tonnes of milk in 2024. The US average is nearly seven times higher at 10.97 tonnes. New Zealand and the EU also report much higher yields. Despite low yields, India’s milk production cost remains relatively low due to cheap labour. Indian dairying is labour-intensive, involving manual feeding, milking and cleaning. Western farms use advanced automation and technology, but higher labour costs offset these efficiencies.
Processing and Marketing Efficiency
India’s dairy cooperatives, such as Gujarat’s Amul, demonstrate high efficiency in processing and marketing. Retail milk prices in India are lower than in the US. Indian farmers receive 55-57% of the consumer price, compared to only 35% in the US. This indicates a compressed value chain and efficient distribution. Cooperatives share a larger portion of retail value with farmers, unlike private dairies. This efficiency strengthens the competitiveness of Indian milk in domestic markets.
Challenges Facing Indian Dairy Sector
India’s dairy competitiveness depends heavily on cheap labour, including unpaid family labour. This model may not be sustainable as rural labour availability declines and wages rise. Increasing education and alternative employment reduce farm labour supply. India lacks abundant pasture land and cannot easily adopt low-cost pasture-based dairy systems like New Zealand. High capital and energy costs limit mechanisation. With over 50 million dairy farmers, India’s sector is highly fragmented compared to the US’s consolidated farms.
Future Directions for Indian Dairy
To sustain competitiveness, India must adopt selective mechanisation and improve milk yields through genetics and breeding innovations. On-farm production of protein-rich fodder can reduce feed costs. The sector must reduce dependency on cheap labour and improve productivity. Investment in technology and efficient farm practices is essential. This will help India maintain its position as a major global dairy producer amid rising global competition.
Questions for UPSC:
- Discuss in the light of India’s agricultural economy how labour costs influence the competitiveness of its dairy sector compared to Western countries.
- Critically examine the role of cooperatives in enhancing farmgate prices for Indian dairy farmers and compare this with private sector dynamics.
- Explain the impact of milk yield differences on global dairy trade and suggest measures India can adopt to improve productivity.
- With suitable examples, discuss the challenges and opportunities of mechanisation in Indian agriculture, focusing on the dairy sector.
