Supply chains and economic development: Insights from the Indian dairy sector

With almost three quarters of the labor force depending on agriculture in India, kick-starting agricultural growth is considered crucial for pro-poor development. More specifically, dairy production – which is labor-intensive but does not heavily rely on access to land – is generally expected to offer better prospects for income growth to the poorest among rural households. However, most policies aimed at increasing dairy production are based on ad hoc observations, with hardly any micro-level evidence. Using a unique primary dataset on 1000 rural households in Andhra Pradesh, this paper investigates the dairy production system, addressing three main research questions: First, we look at the typical profile of a dairy farmer and we find that both family traditions in dairy and owning (even a small piece of) land play a role in determining participation in dairy – while land size does not matter. Second, we show that dairy production is strongly and positively associated with improvement in rural livelihoods, in terms of income per capita, but that this positive relation only holds for larger dairy farms. In a third step, we look at the determinants of farm growth and we find that households having higher shares of graded dairy animals have grown more after 2005.