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Compulsory Legislation
Prevention of Food Adulteration Act, 1954
Milk and Milk Products Order, 1992
Standards on Weights and Measures (Packaged Commodities) Rules, 1977
Export (Quality Control & Inspection) Act, 1963
Pollution Control
Voluntary Standards
The Bureau of Indian Standards
Directorate of Marketing and Inspection
Other government regulations
Industrial license
Foreign investment
Foreign technology agreements
Import of capital goods
Import of second hand capital goods
Dividend balancing
Sections At This Level
Advantage: Investments
Export Outlook
Import-Export Regulations
FORM: Buy and Sell

Regulatory Enviroment in the Dairy Processing Sector

The Indian processed dairy industry has grown and diversified enormously in the last few years. To ensure the proper development and growth of this industrial sector, the Government of India has instituted various laws and regulations. The various regulations that govern the dairy processing industry can broadly be classified into:

Compulsory Legislation

Prevention of Food Adulteration Act, 1954

This Act is the basic statute that is intended to protect the common consumer against the supply of adulterated food. This specifies different standards for various food articles. The standards are in terms of minimum quality levels intended for ensuring safety in the consumption of these food items and for safeguarding against harmful impurities and adulteration. The Central Committee for Food Standards, under the Directorate General of Health Services, Ministry of Health and Family Welfare, is responsible for the operation of this Act. The provisions of the Act are mandatory and contravention of the rules can lead to both fines and imprisonment.



Milk and Milk Product Order (MMPO) 1992

The Milk and Milk Product Order (MMPO), 1992, issued on June 9, 1992 seeks to ensure the supply of liquid milk, an essential commodity, to consumers by regulating its processing and distribution. Within eight years of its operation, the Central/State Registering Authorities have till December 2000 registered 666 units with a total processing capacity of 65.8 million litres per day (mlpd).

Salient Features of the MMPO Order include the following:
-- Registrations for units handling up to 75,000 litres of milk per day are granted by the State Governments and units with more than 75,000 litres per day capacity are registered by the Central Registering Authority.
-- The Certificate also specifies the milkshed area, which, under the order is defined as a geographical area demarcated by the Registering Authority for the collection of milk by the registered unit.
-- Maintenance of specified hygienic conditions in the premises where milk and milk products are handled, processed, manufactured or stored.

The collection, transportation and processing of milk normally centres around the operations of a processing plant. The region from which the marketable surplus of milk production finds its way to a processing plant is called a 'milkshed'. The concept of milkshed areas is pivotal to the MMPO. For an orderly development of the dairy industry, a proper assignment/allocation of milkshed is critical.

The dairy industry is regulated in most countries through various ways. Many subsidise part or whole of domestic production. Imports are commonly restricted, and exports frequently subsidised. High dairy price supports in many countries are put in place to stimulate production to the extent that subsidies for exports are necessitated to maintain domestic dairy programmes.

In the United Kingdom, all the milk produced by farmers is procured by the cooperatives. Private dairies are required to buy their milk requirement from cooperatives. New Zealand has no private sector dairy plants. As many as 90 per cent of dairies in the erstwhile West Germany and 100 per cent in Denmark, Netherlands and Sweden are in the cooperative sector.

In the United States, 70 per cent of the dairy industry is cooperative. Dairy programmes are subject to more Government participation or regulation than most other domestic agricultural industries in the USA. There are also Federal Milk Marketing Orders and movement barriers in the USA for "orderly marketing control, which is associated with stabilising fluid milk prices, providing secured and dependable markets for individual farmers producing milk primarily for the fluid market and improving the balance of market power between farmers and handlers.

In the emerging liberalised global scenario, trade-distorting agricultural policies have been the focus of the GATT multilateral trade negotiations. With the liberalisation of agricultural trade under the new GATT regime, the heavy subsidies prevalent in the dairy sector in the countries of the EU as well as in the USA will have to be brought down in the next few years. The competitive advantages of the Indian dairy industry are then considered to be substantial. With substantial and continued investment in building up milk production, India can emerge as a major exporter of dairy products in the next few decades.

Standards on Weights and Measures (Packaged Commodities) Rules, 1977

These Rules lay down certain obligatory conditions for all commodities that are packed form, with respect to declarations on quantities contained. These Rules are operated by the Directorate of Weights and Measures, under the Ministry of Food and Civil Supplies.

Export (Quality Control & Inspection) Act, 1963

The Export Inspection Council is responsible for the operation of this Act. Under the Act, a large number of exportable commodities have been notified for compulsory pre-shipment inspection. The quality control and inspection of various export products is administered through a network of more than fifty offices located around major production centres and ports of shipment. In addition, organizations may be recognized as agencies for inspection and /or quality control. Recently, the government has exempted agriculture and food products, fruit products and fish and fishery products from compulsory pre-shipment inspections, provided that the exporter has a firm letter from the overseas buyer stating that the overseas buyer does not require pre-shipment inspection from official Indian inspection agencies.

Pollution Control

No Objection Certificate from Pollution Control Board is a must.

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Voluntary Standards

There are two organizations that deal with voluntary standardization and certification systems in the food sector. The Bureau of Indian Standards looks after standardization of processed foods and standardization of raw agricultural produce is under the purview of the Directorate of Marketing and Inspection.

Bureau of Indian Standards (BIS)

The activities of BIS are two fold, the formulation of Indian standards in the processed foods sector and the implementation of standards through promotion and through voluntary and third party certification systems. BIS has on record, standards for most of processed foods. In general, these standards cover raw materials permitted and their quality parameters, hygienic conditions under which products are manufactured and packaging and labelling requirements. Manufacturers complying with standards laid down by the BIS can obtain and "ISI" mark that can be exhibited on product packages. BIS has identified certain items like food colours/additives, vanaspati, containers for packing, milk powder and condensed milk, for compulsory certification.

Directorate of Marketing and Inspection (DMI)

The DMI enforces the Agricultural Products (Grading and Marketing) Act, 1937. Under this Act, Grade Standards are prescribed for agricultural and allied commodities. These are known as "Agmark" Standards. Grading under the provisions of this Act is voluntary. Manufacturers who comply with standard laid down by DMI are allowed to use "Agmark" labels on their products.

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Other Government Regulations

Industrial Licence:

No licence is required for setting up a Dairy Project in India. Only a Memorandum has to be submitted to the Secretariat for Industrial Approvals (SIA) and an acknowledgment is to be obtained.
However Certificate of Registration is required under the Milk and Milk Products Control Order (MMPO) 1992.

Foreign Investment:

Foreign Investment in dairying requires prior approval from the Secretariat of Industrial Approvals, Ministry of Industry, as dairying has not been included in the list of High Priority Industries.
Automatic approval will be given upto 51% Foreign Investment in High Priority Industries.
In case of other Industries, proposals will be cleared on case to case basis. Government may allow 51% without enforcing the old limit of 40% applicable under Foreign Exchange Regulations Act at its discretion.

Foreign Technology Agreements:

Foreign Technology Agreements are freely allowed in high priority industries under the following terms:

Lump sum payment of Rs 10 million
Royalty payment of 5% on domestic sales and 8% as exports subject to total payment of 8% on sales turnover, over a 10 year period from the date of agreement or 7 years from commencement of production.
Foreign Technology Agreements in dairying also need prior approval. Foreign Exchange required for payment of Royalty will have to be purchased at market rates.
Foreign Technicians can be freely hired.

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Import of Capital Goods

Import of capital goods is automatically allowed if it is financed through Foreign Equity. Alternatively, approval is needed from the Secretariat of Industrial Approvals. The approval depends on the availability of Foreign Exchange Resources.

Import of Second Hand Capital Goods

Import of Second hand goods is allowed subject to the following conditions:

Minimum Residual life of 5 years
The equipment should not be more than 7 years old.
A certificate from the Chartered Engineers of the country of origin certifying the age and the Residual life is to be produced.
Import will be allowed only for actual users.

Dividend Balancing

Remittances of dividend should be covered by earnings from exports recorded in the years prior to the payment of dividend or in the years of the payment of the dividend.

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