New GST regime on dairy products will hit farmers, entrepreneurs

At a time when the cost of dairy products is on the rise, the Goods and Services Tax (GST) Council’s decision to impose 5% tax on curd, buttermilk and lassi has come as a relief to the dairy sector.

“The dairy sector is a source of livelihood for people from the lower strata of society. GST on high-demand dairy products like curd, lassi and butter will force us to increase prices, which may affect consumer uptake,” says KS Mani, chairman, Kerala Cooperative Milk Marketing Federation (Milma).

The decision will put severe stress on the sector, which is already under pressure due to rising production costs.

“Although farmers have been clamoring for an increase in the prices of milk and milk products due to the rising cost of production, we have been able to cope without a spike by extending support to them,” says Mr. Mani.

“India has topped the world milk production with the support of the Union and state governments despite being a low profit sector. Current policies will only help big players enter the sector, which will adversely affect small dairy farmers,” he says.

“To add to the woes, primary dairy cooperatives have been brought under income tax for the past two years, despite operating on a no-profit no-loss basis. Imposing a tax will hit dairy farmers. As the sector is a source of livelihood for many small farmers, the government should protect their interest,” says the Milma chairman.

Milk consumers are aware of prices. Since milk and milk products are essential commodities, the government should consider reversing the decision, says Sujith Sudhakaran, CEO of AM Needs, a milk delivery app.

Milk production costs in Kerala have increased significantly, with the price of cattle feed alone rising by more than 30% compared to the previous season, says TP Sethumadhavan, former director of the Kerala University of Veterinary and Animal Sciences.

“Adding value of milk to easy-to-consume products provides better profit margin to dairy entrepreneurs. Consumption of curd and lassi is increasing in Kerala market. The new GST rate will affect both manufacturers and consumers. Also, as mechanization gathers pace in dairy farming, the increase in GST on dairy and farm machinery from 12 to 18% may further increase the cost of production,” he adds.