Why Dairy Was Excluded From the India New Zealand Free Trade Agreement

The India New Zealand Free Trade Agreement, signed on 27 April 2026 in New Delhi, covers 95 percent of New Zealand's exports to India with tariff reductions or eliminations. But one category is conspicuously absent from the deal: core dairy products. Milk, cheese, and butter remain entirely outside the scope of this agreement. This is the first time in its history that New Zealand has signed a free trade agreement that completely excludes its flagship dairy sector.

India's Dairy Economy and Why It Cannot Be Opened to Free Trade

India is the world's largest producer and consumer of milk. The dairy sector in India is not an industrial operation in the way it is in New Zealand or Australia. It is a livelihood system. Millions of small and marginal farmers across India depend on dairy as a primary or supplementary source of income. The cooperative model, anchored by organisations such as Amul and various state-level dairy federations, provides a market linkage and price support structure that sustains rural households across the country.

New Zealand, by contrast, has one of the most efficient and export-oriented dairy industries in the world. Fonterra, New Zealand's dairy cooperative giant, is among the largest dairy exporters globally. New Zealand dairy products are produced at scale, with advanced technology, favourable climatic conditions for pasture-based farming, and significantly lower per-unit costs. If India were to open its dairy market to unrestricted New Zealand imports, even at reduced tariffs, the price differential would place enormous pressure on Indian dairy farmers who operate at much smaller scales and higher costs.

This is not a theoretical concern. When India negotiated the Regional Comprehensive Economic Partnership (RCEP), one of the primary reasons India withdrew from the agreement in 2019 was the potential impact of dairy and agricultural imports from Australia and New Zealand on Indian farmers. The political sensitivity of dairy in India cannot be overstated. Any government that opened the dairy market to unrestricted foreign competition would face severe political consequences in rural constituencies across the country.

What the Exclusion Actually Covers

The exclusion applies to core dairy products: milk, cheese, and butter intended for domestic consumption in India. These products will continue to attract India's existing tariff rates and will not receive any preferential treatment under the FTA. This is a hard exclusion, not a phase-in or a tariff rate quota. The products are simply not part of the agreement.

Alongside dairy, certain other politically sensitive agricultural products were also excluded. Sugar, onions, and edible oils remain outside the scope of the FTA. Each of these commodities has its own history of price volatility and political sensitivity in India. Onion prices alone have contributed to electoral outcomes in multiple Indian states, making any trade liberalisation in these categories a political impossibility.

The Two Narrow Exceptions

While core dairy is excluded, the FTA does contain two narrow exceptions that allow limited dairy trade under specific conditions.

First, dairy and food ingredients imported for the purpose of re-export receive immediate duty-free access. This means that if an Indian manufacturer imports New Zealand dairy ingredients to produce a finished product that is then exported to a third country, no duty applies. The dairy never enters the Indian domestic market for consumption. This exception supports India's food processing and export industry without threatening domestic dairy farmers.

Second, bulk infant formula and certain high-value dairy products will receive phased duty-free access over a seven-year period. Infant formula is a specialised product category where New Zealand has established expertise and quality certifications. The phased approach gives Indian manufacturers time to adjust, while the infant formula market itself is relatively distinct from the broader dairy commodities market.

What This Means for New Zealand

Dairy is New Zealand's single largest export category globally. The exclusion of core dairy from the India FTA represents a significant limitation on the commercial value of this agreement for New Zealand's agricultural sector. New Zealand media commentary has characterised the deal as good but not great, noting that without dairy access, the FTA does not deliver the transformative market opening that New Zealand's dairy industry had sought for over a decade.

However, New Zealand negotiators accepted this outcome in exchange for meaningful access in other sectors, including apples, kiwifruit, wine, Manuka honey, and timber. The FTA also provides New Zealand with access to India's services market, investment facilitation commitments, and a Most Favoured Nation clause that protects New Zealand's position if India grants better terms to future FTA partners.

The RCEP Precedent

India's withdrawal from RCEP in 2019 demonstrated that dairy access is a genuine dealbreaker in Indian trade negotiations. During the RCEP discussions, dairy imports from Australia and New Zealand were repeatedly flagged as a red line by Indian negotiators and by domestic agricultural lobbies. The decision to exclude dairy from the India-NZ FTA reflects lessons learned from the RCEP experience. By taking dairy off the table entirely, both sides were able to conclude negotiations in a record nine months, rather than letting the dairy question drag the talks into indefinite stalemate as it did between 2010 and 2015 when negotiations originally stalled.

Legal and Policy Implications

The dairy exclusion sets an important precedent for India's future FTA negotiations. It establishes that India is willing to enter comprehensive trade agreements but will maintain non-negotiable carve-outs for sectors that directly affect the livelihoods of millions of small farmers. This approach is consistent with India's position in the India-Australia Economic Cooperation and Trade Agreement (ECTA) of 2022, where dairy was similarly treated with caution.

For trade policy analysts and legal practitioners, the dairy exclusion in the India-NZ FTA is a case study in how political economy constraints shape the legal architecture of trade agreements. The exclusion is not a failure of negotiation. It is a deliberate structural choice that enabled the broader agreement to succeed. Understanding this dynamic is essential for anyone working on India's trade policy or advising businesses on market access under India's growing network of bilateral free trade agreements.