Recently, India has successfully concluded a Free Trade Agreement (FTA) with the United Kingdom, and negotiations with New Zealand have commenced. In contrast, the United States continues to engage in tariff politics with numerous countries worldwide. Throughout these negotiations, the Indian government and the Prime Minister have consistently taken a firm stance against opening sensitive sectors, particularly the dairy industry, in bilateral agreements. This stance is driven by a commitment to safeguarding the interests of millions of small and marginal farmers whose livelihoods are intricately linked to livestock and dairying.
However, the developed world frequently criticises developing nations for providing subsidies to their farmers, arguing that such practices distort the market and hinder a level playing field. These nations often assert their right to access developing markets, claiming that reducing subsidies is essential for fair competition. Such claims, however, merit closer examination, as they often obscure the reality of the extensive subsidies provided to farmers in developed economies.
This apparent contradiction has always intrigued me, prompting me to undertake a deeper investigation into the nature and extent of agricultural subsidies in the developed world compared to those in India. The aim of this @Suruchi Research is to uncover how some developed countries, while advocating for market access in the name of fairness, simultaneously provide substantial subsidies to their own farmers, thereby creating an uneven competitive landscape.
Subsidies in the developed world
All major dairy-exporting regions support their sectors heavily, but in very different ways. In the USA, direct price supports ended in the 1990s, but farmers now benefit from margin-insurance programs (e.g., Dairy Margin Coverage), export assistance, and indirect subsidies (e.g., subsidized crop irrigation and energy). A 2018 analysis estimated U.S. government support for dairy at roughly $22.2 billion in 2015 – about C$0.35 per liter of milk. (In context, that year’s U.S. milk production was ~95 MMT, so support equalled ~$0.27/L.) Over the 2010s, the U.S. expanded risk-management (insurance) programs to stabilize low prices, effectively subsidizing production.
In the EU, dairy subsidies are embedded in the Common Agricultural Policy (CAP). Direct payments (mostly decoupled) totalled over €50 billion annually to all farmers, with a small ‘coupled’ share (up to 10% of Pillar I budget) optionally targeted to dairying. Milk quotas were abolished in 2015, ending production limits, but the CAP continued to grant a per-hectare payment that effectively supports dairy (and other) farmers’ incomes. The EU also maintains public stockholding and intervention schemes to stabilize markets. Despite rhetoric of greening, the CAP remains a major source of support for EU dairy farmers.
By contrast, New Zealand and Australia have mostly eliminated direct dairy subsidies. New Zealand removed farm subsidies in the 1980s and milk quotas in 2001; today its dairy sector is market-driven, relying on industry research and infrastructure (e.g., through co-ops like Fonterra). Likewise, Australia deregulated dairy (ending price support by 2000) and now funds only modest R&D and infrastructure programs. Neither country’s government provides production-linked support comparable to the CAP or U.S. insurance.
Between 2021 and 2025, both the European Union (EU) and the United States (US) implemented substantial subsidies and support mechanisms for their dairy sectors. These measures aimed to mitigate the impacts of the COVID-19 pandemic, address rising input costs, and enhance supply chain resilience. However, such extensive support has raised concerns about trade fairness, particularly from developing nations like India.
In the European Union, the Common Agricultural Policy (CAP) for the period 2021–2027 allocated €387 billion, accounting for nearly one-third of the EU’s total budget. In 2025, the European Commission proposed new subsidies under the CAP to promote better water management and reduce waste, including support for drought-resistant crops and precision irrigation systems. Additionally, the EU allocated €98.6 million from the agricultural reserve in February 2025 to support farmers in Spain, Croatia, Cyprus, Latvia, and Hungary affected by adverse climatic events and natural disasters.
Between 2021 and 2024, EU Member States provided over €18 billion in state aid to the agricultural sector. Poland, for instance, allocated €4 billion in government subsidies under the crisis framework, while Italy provided €2.3 billion through umbrella schemes targeting agriculture, livestock, fisheries, and aquaculture. France supported organic farmers with a €90 million direct grant scheme. Furthermore, in response to farmer protests, the EU proposed easing environmental rules tied to farming subsidies, potentially saving farmers up to €1.58 billion annually. The proposed changes included exempting smaller farmers from basic environmental requirements and increasing lump-sum payment limits.
In the United States, the American Rescue Plan Act of 2021 allocated $10.4 billion for agriculture, including the dairy sector, covering debt forgiveness and purchase and distribution programs. In 2024, the USDA invested $11.04 million to support dairy businesses and producers under the Dairy Business Innovation (DBI) grant program. To date, the DBI initiatives have invested over $64 million into more than 600 projects aimed at increasing dairy supply chain resiliency and expanding economic growth in rural economies.
Moreover, in January 2023, the Consolidated Appropriations Act authorized $3.74 billion in assistance to producers for losses due to various natural disasters in 2022, including droughts and floods, with up to $494.5 million designated for livestock producers. Additionally, the Dairy Revenue Protection (Dairy-RP) program in the US secured about 35% of milk production during the last three quarters of 2024. From 2019 to 2024, producers invested $150 million and received $233 million in indemnity payments, indicating a return of $1.55 for every dollar invested.
These substantial subsidies and policy adjustments by developed nations underscore the challenges faced by developing countries like India in achieving equitable access to global dairy markets. While developed countries support their farmers through significant financial aid and regulatory flexibility, they often advocate for market liberalization in developing nations. This highlights a disparity that affects the competitiveness of smallholder farmers in countries like India.
Support and subsidy in India
In India, dairy support is indirect and diffuse. There is no national “milk price support” like for crops, but the government subsidizes certain inputs for agriculture and dairy farming. In a few states many smallholders receive free or subsidized inputs (electricity for irrigation, fodder seed, vaccines, and even cheap cattle feed in some states) and subsidized credit. Central schemes (e.g. National Dairy Plan, Animal Husbandry Infrastructure Fund) fund cooperatives, chilling centres and breeding programs. Several states now offer “minimum support prices” for milk, setting procurement prices above market – e.g. recent hikes to ₹45–55/L for cow/buffalo milk in one of the state. Overall, in a few states Indian farmers pay little for water, fertilizer or electricity (all subsidized), which indirectly subsidizes dairy feed and fodder production. But these inputs also support their agriculture activities.
These contrasts yield very different per‑litre and per‑animal support. In 2015 U.S. support was about C$0.35/L. EU direct CAP payments amount to perhaps €0.15–0.20/L at the farm gate (depending on yield), plus any coupled top-ups (up to 10% of Pillar I). New Zealand and Australia have essentially $0/L of direct dairy subsidy. India’s “subsidy per litre” is hard to quantify, but in a few states dairy farmers benefit from cheap inputs and occasional state price supports (perhaps equating to >C$.06–C$10/L in reduced costs).
Trends
Over the last decade, the USA has re-engineered its support toward insurance (DMC/LGM-Dairy) and emergency aid (disaster/Pandemic Assistance). In 2014–18 Farm Bills, dairy margin programs replaced older counter-cyclical payments.
EU reforms (2013/2020 CAP) decoupled dairy payments fully and greening rules were added (e.g. eco-schemes). The EU is also debating new “carbon farming” payments, but has not cut farm supports.
New Zealand’s long-term trend is herd expansion at its efficiency frontier (no new subsidies). Australia’s dairy sector, after a decline in herd size since 2000, stabilized with higher per-cow yields (no new supports introduced).
India has steadily increased funding for livestock: e.g. merging multiple cattle/dairy development funds (Animal Husbandry Infrastructure Fund) in 2021; launching the Rashtriya Gokul Mission and National Kamdhenu Breeding Centres to improve indigenous stock; and offering the Pashu Bima (livestock insurance) scheme. Though the input subsidies from central government is slowly getting reduced.
Trade Practices and Policies
Major exporters aggressively use trade agreements and narratives to open markets. The USA and EU have pushed FTAs (e.g. USMCA, CPTPP via AUS/NZ, EU–Mercosur) that grant them tariff-rate quotas or lower duties for dairy. For example, USMCA gave U.S. access to about 3–3.6% of Canada’s cheese market, and CPTPP gave NZ/AUS quotas into Japan. Conversely, these exporters cite “sustainability” and methane as leverage.
In bilateral talks, the US has pressed India to liberalize dairy markets – but India has resisted, in part by demanding its strict “vegetarian feed” standards be met. India bans dairy imports from cows fed any animal proteins (e.g. blood meal), a rule enshrined in its Food Safety rules. In the 2024–25 US–India trade talks, negotiators impasse was largely over this: India “drew a firm line” that imported dairy must meet its feed/ethical norms. The US even labelled India’s rules as “onerous” in its 2025 Trade Policy Agenda. In effect, India uses sanitary and cultural barriers (feed standards, stringent residues limits, and high tariffs (often 60–90%) on cheese/butter) to protect its vast smallholder sector.
Developed exporters also leverage climate rhetoric. At COP26 (2021), the U.S. and EU championed a methane pledge; India – with ~40% of global cattle – refused to sign, citing threats to its farm economy. Government officials explicitly noted that India’s “vast farm sector” and two-thirds rural population rely on agriculture and livestock, making blanket methane cuts unfeasible.
Meanwhile Western countries simultaneously pressure developing nations to cut herd sizes or enter carbon markets for methane reduction, even though Western dairy consumption per capita remains high. This creates a double standard: rich countries demand emissions curbs while continuing to export subsidized dairy.
Barriers against India (and other developing exporters) include: stiff import tariffs; sanitary regulations (e.g. EU bans on certain animal feeds or additives used in Indian dairy); and quality standards favoring large-scale production. India’s absence from major dairy trade pacts (e.g. only an unfinished FTA with New Zealand, no full access to US/EU markets) means it can mainly sell surplus buffalo milk powder and ghee to niche markets (Middle East, Africa). Any push to liberalize Indian dairy (e.g. under an FTA) meets stiff domestic resistance.
Socioeconomic Context
In India, dairy is fundamental to rural livelihoods. About 70% of India’s dairy farmers are smallholders (1–2 cows) and nearly all are part-time or landless. The sector contributes ~26% of India’s agricultural GDP (~5% of national GDP) and provides income to roughly 9% of the population. Importantly, women dominate Indian dairying and they carry out >70% of milking and processing labor, giving rural women crucial income and social status. Studies of cooperatives (e.g. Amul model) show dairy income notably reduces poverty and migration in villages.
By contrast, developed-country dairy is much more industrial. The average US dairy farm now has hundreds of cows (U.S. herds ~9.4 million cows total), and dairy farms account for a tiny fraction of employment. EU dairy farms vary (average ~60–100 cows in large Western farms, fewer in Eastern Europe), but most are family businesses with dozens of cows. New Zealand farmers average ~300 cows.
Worldwide, as per @Suruchi Research, 3 out of 4 dairy farms have ≤10 cows. In fact, the average global dairy herd size is only about 3 cows, largely reflecting India, Africa and Asia. Yet these small-scale producers (over half of global dairy production) struggle with low productivity and high methane intensity.
The policy contrast is stark: Western dairy lobbies defend large farms receiving substantial subsidies (and climate-friendly feed additives), whereas Indian dairy consists of millions of tiny farms with little access to credit or technology. Indian policy has historically prioritized food security and livelihoods (e.g. through subsidizing food grain and electricity) rather than explicitly curbing methane. However recently the Indian government has begun initiating measure to reduce methane emission in dairying under programs like Gobar-Dhan and Balanced ration for dairy farmers and cooperatives. The result is that each Indian cow (and buffalo) plays a critical social role, whereas each American cow is treated as an economic unit.
Conclusion
Current dairy policies and trade rules create an uneven playing field globally. Rich-country producers remain protected (through subsidies and quotas) while preaching sustainability. Their own diets and consumption levels drive dairy demand, yet they often blame developing countries for emissions from low-input farming. India and similar economies face a difficult choice: either reduce the number of livestock or completely change thousands of rural livelihoods to meet Western climate standards—both options are politically and socially challenging. At the same time, Indian dairy farmers would be at a severe disadvantage if tariffs fell, as they could not compete with cheaper subsidised imports.
In short, the “sustainability” argument is used both as a market strategy and a diplomatic lever. As one analysis notes, Western dairy giants produce more emissions than many entire countries, yet focus scrutiny on smallholder systems abroad. Without more equitable consideration of local livelihoods and true carbon footprints (including co‐benefits of grazing systems), global trade and climate discussions risk unfairly penalizing low-income nations. Any future trade or climate accords on dairy must balance emissions concerns with the reality that for billions of people—especially India’s rural poor—milk is food security and income security.
It is time for India to thoughtfully integrate our dairy sector into the global trade landscape. However, any move towards opening the market must be carefully considered and strategically planned to ensure that the interests of our dairy farmers—who form the backbone of rural livelihoods—are fully safeguarded. Our commitment to protecting these communities must remain at the heart of every decision.
Source : Blog by Kuldeep Sharma Chief Editor Dairynews7x7 May 16th 2025
Sources: Official data and analyses from USDA, FAO, EU statistics, News articles, Government publications and industry reports have been used throughout.