Subsidy Virus Spreads to Milk Industry in India

By Chuck Muth, President, Citizen Outreach

Writing in the Free Press Journal, consulting editor RN Bhaskar reports that “Maharashtra’s milk producers have been staging protests on the roads” and have “highlighted their grievances by pouring out thousands of litres of milk onto the streets” in an effort to get “the government to subsidise milk prices.”

But, asks Bhaskar, if neighboring Gujarat “can afford to pay higher prices to farmers without any subsidy from the government, why can’t Maharashtra?!”

“Even private sector producers like Hatsun and Nestle do so without any government subsidy,” Bhaskar continued.  “Why should Maharashtra’s producers be given special treatment?”

Bhaskar went on to note that the late Dr. Verghese Kurien – who Wikipedia credits for making “dairy farming India’s largest self-sustaining industry” – maintained that government subsidies “weaken farmers, not strengthen them” and that “market mechanisms make them stronger.”

Bhaskar agrees, writing that “subsidies distort the market. They promote the inefficient. And that is why the milk subsidy being demanded is bad in principle and dangerous in precedent.”

Actually, the precedent has already been set.

India is the world’s second largest producer of sugar and has been subsidizing the industry for years, drastically distorting the global market price thanks to “the sheer political clout that this lobby wields.”

“Someone needs to rein in these sugar cooperatives,” Bhaskar concluded.  “Their bosses have been making too much of money, often at the expense of common folk. They have robbed banks, diverted water, exploited farmers, and even blocked state development.”

That does not a free market make.

Which is why the U.S. sugar program of targeted import restrictions and limited tariffs on sugar produced in countries that artificially distort the market through government subsidies continues to be necessary.

Indian subsidies – whether for sugar or milk – indeed weaken farmers, not strengthen them, and is, indeed, bad policy.  A true free market in either industry would force the inefficient to become more efficient.

Government subsidies reward inefficiency.  U.S. sugar policies shouldn’t.