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ENHANCING DAIRY SECTOR EXPORT COMPETITIVENESS IN PAKISTANImpact AssessmentPakistan shares a long mountainous border with Afghanistan. The rough terrain and current law and ordersituation in the Pakistani neighbouring tribal belts makes it difficult for the border control authorities toprotect each and every part of the long border given that the economic and human resources are notenough for this particular purpose. Further to this, corrupt practices in the border and customs personnelmake government’s efforts to fail. Therefore this situation has resulted into rise in the informal trade oflivestock worth millions of dollars from Pakistan thus giving a shock to the national economy. 130RecommendationInformal trade of livestock is not only the single issue of Pakistan as far as border issues are concerned.There are other products that are traded between Pakistan and its neighbouring countries informally.Therefore both domestic as well as international border measures are required to be taken to stop informaltrade of precious products from Pakistan.a. The Government of Pakistan and its neighbouring countries should enter into bilateralarrangements where they should adopt measures to restrict the smuggling of line animalsacross international borders.b. Appropriate legal reforms resulting in prohibitive penalties should be enforced where the illegaltrade of live animals should be restricted and punitive measures should be defined for thoseinvolved in such illegal trade. This will greatly reduce the informal trade since the local policewill also be involved and authorized to curb smuggling by providing a third tier of check on theinformal trade.Policy and Regulatory Framework for Dairy DevelopmentTaxes and Tariff RegimeDuring the primary research where stakeholders were contacted so as to seek their opinion on variousregulatory and policy related matters, a number of them mentioned that the government has notestablished a separate tax and tariff mechanism for the livestock sector. The government usually appliesthe same duty and tax regime for poultry and livestock sector without considering the fact that both sectorshave different parameters and varying levels of advancement. The livestock and dairy sectors requireadditional incentives as it is far behind the poultry sector which is much better organized and systematizeddue to specialization and investment by the stakeholders. Therefore a different tax and tariff regime isrequired to make dairy sector progressing and productive.Measures AdoptedRecent measures include sales tax exemptions on processed milk, yogurt, cheese, flavoured milk, butterand cream. These measures are aimed at encouraging value addition in the dairy sector. Other measuresinclude duty free import of live animals (bovine), veterinary equipment and vaccines, and dairy andlivestock machinery and equipment. Very recently, certain other products such as feed ingredients andinputs used for feed preparation, growth promoters and vitamin pre-mixes were also allowed at zero ratedduty.Impact AssessmentThe most immediate impact of the liberal import regime with zero tariffs has resulted in the import of 9,500exotic animals, 318,768 semen doses and 4,300 embryos of high yielding animals since 2010. This hashad a direct and indirect effect on an increase in the establishment of milk processing units in the country.130Smuggling makes animals dearer, Tahir Ali Khan, Dawn Newspaper,81
ENHANCING DAIRY SECTOR EXPORT COMPETITIVENESS IN PAKISTANRecommendation(iii)Keeping in mind that loose milk in the informal sector is not regulated at all; the formal industryends up facing the brunt of government taxes. A balanced approach to provide a level playingfield should be adopted to nurture appropriate competition between the two sectors. Anincrease in the cost of production by the formal industry may lead to reliance on importedpackaged products in view of future demand. 131Reforms in Milk Pricing MechanismThe domestic dairy market is currently facing a dichotomy in which the price of loose milk is beingregulated by local authorities in the urban markets while no such regulations are applied to prices ofpackaged milk in the formal sector. In case of loose milk, the designated officials of the local authoritiescarry out a market survey and then in consultation with the relevant stakeholders fix a selling price of loosemilk in the domestic market.Measures AdoptedThe “Price Control Committees” formed under the provincial/ district governments carry out consultationswith the dairy associations to fix the retail price of milk in the local markets. 132 The price to be negotiatedwith these committees by the associations is initially agreed mutually by their members. 133Impact AssessmentThe practice of price control is highly flawed as in the first instance the members of the relevantassociation(s) come together and agree upon a mutual price and secondly; the forum of the association(s)is then used for fixation of price in coordination with the local authorities. This method gives rise tocollusive practices and deteriorates the domestic competition environment. The associations also generallyhave low negotiation powers to advocate the selling price on behalf of their members with the localauthorities.Another aspect is the potential inability of local producers to sell milk at the fixed price in view of their costof production. These enhance constraints in ensuring consistency in milk supplies to the domesticconsumers and also result into rise in the incidents of sale of adulterated/ low quality milk. Even when theprice is fixed, either due to limited capacity or lack of proper enforcement mechanism, the local authoritieshave limited authority to resort to punitive measures for those milkmen and retail shopkeepers whoincrease the prices illegally.Recommendationsi. It is proposed that the relevant government authorities should immediately withdraw theirsupport from fixing and controlling the selling price of loose milk. The practice of using privateassociations as forums to negotiate prices and the consequent ‘collusion’ created by thegovernment is against the spirit of competition and that all such agreements are prohibitedunder Section 4 of the Competition Act, 2010. 134ii. The intention behind price fixation is to keep milk and dairy products affordable for the localconsumers. The same can be achieved in a more effective and sustainable manner throughintroduction of open competition in both formal and informal sectors. The price of milk willreach equilibrium once the demand for quality milk is driven by consumers and this would also131 Pakistan Dairy Association (PDA)132Arid Agriculture University, Rawalpindi133 According to the latest price control list issued by the City District Government Lahore (CDGL), the selling price of buffalo milk isfixed at PKR 50/ litre (USD 0.5), cow milk at PKR 45/ litre (USD 0.47) and yogurt at PKR 50/ kg (USD 0.5) within the urban area.134Section 4(1) prohibits and renders void "all agreements between undertakings, decisions by associations of undertakings andconcerted practices which have as their object or effect the prevention, restriction or distortion of competition in trade in any goods orservices in the State or in any part of the State". The Act lists some specific types of behaviour which are expressly prohibited. Theseinclude “Fixing the purchase or selling price or imposing any other restrictive trading conditions with regard to the sale or distributionof any goods or the provision of any services.”82
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