MyRepublica.com reports (cick here for the article) that there is a shortage of milk and the state-owned dairy producer- Dairy Development Corporation, “the major player in domestic dairy market – has started importing 50,000 liters milk worth over Rs 1.5 million per day from Patna Dairy Project – an undertaking of India’s Bihar State – to fulfill increasing milk deficit.”
A few days ago this article, which I wrote about on my blog here, painted a gloomy picture of the dairy industry in Nepal. It pointed to the various programs designed by the government to solve the issues plaguing the industry. However, this promising article from the Nepali Times demonstrates that the private industry can innovate to thrive and meet the demand of the marketplace. Entrepreneurial minds will always look for solutions when there are barriers surrounding the industry.
Thus far, it seems like we are pointing towards the market participants as the problem child and suggesting various solutions to these “problems.” Is this the right diagnosis? Or, is it the government’s involvement in production of milk the real culprit?
There seems to be, without a doubt, volatility in milk production, sometimes with shortages of up to 40%. So, why are the investors reluctant to get into the market with promising returns? Why are existing private producers hesitant to expand? Well, could the answer be found in the state’s involvement in production? Does the government-run dairy production create uncertainty for investors?—what if private investors cannot compete with the heavily state supported/subsidized DDC in the future, especially after having invested millions? Does this provide an impetus for private producers to make large financial investments?--I do not think so! It seems like the misplaced incentives are the impediment to a flourishing dairy industry in Nepal. Therefore, a gradual privatization of the DDC, and tax incentives for farmers/private dairy producers for long run investments, might reduce uncertainty, strengthen the industry, and create a reliable and less volatile market for dairy products.
Sounds pretty reasonable. Common household goods are perfectly suited for market activity. Why does it always have to be one extreme or the other? Milk is a perfect example of a private good: it's excludable and rival. There's no externality as is the case with the military, education and health care, so markets would be efficient without any spillover effects. It's too bad. Why isn't the middle path followed in the region that invented the philosophy?
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