India’s dairy sector is entering a phase of tighter milk supply and margin recalibration after navigating sharp cycles of disruption, surplus, and recovery
over the past three years, according to insights shared during an expert session hosted by Systematix Institutional Equities, reported ET. From Post-COVID Stress to Supply Recovery The post-COVID period of 2022–23 proved particularly challenging for the industry. Milk prices fell sharply to levels that failed to cover farmers’ production costs, leading to reduced cattle induction and a significant drop in milk output, the report noted. From mid-2023, however, renewed farmer engagement by leading cooperatives and private dairy players—supported by initiatives such as sustainable fodder programmes—helped restore confidence among producers and revive supply. These efforts culminated in a strong rebound during the October 2024–March 2025 flush season, when milk production surged by nearly 25 per cent, resulting in a temporary surplus across the industry. How Dairy Companies Managed the Surplus To absorb excess supply, dairy companies:
- Expanded their value-added product portfolios
- Strengthened cold-chain infrastructure
- Increased advertising and promotional spending
- Invested in backend operations and last-mile distribution
Large players, in particular, focused on inventory management and capacity expansion to stabilise operations during the surplus phase.
Supply Tightens Again in 2025
The surplus proved short-lived. In 2025, early and unseasonal rains disrupted the typical summer demand-supply cycle. At the same time, geopolitical disturbances—including the India-Pakistan conflict—affected key northern milk-producing belts such as Punjab, Haryana, and Jammu & Kashmir.
Robust festive demand further depleted inventories, leaving the industry with only a limited surplus as it moved into late 2025, according to the expert session.
Rising Procurement Costs, Stable Consumer Prices
As a result, milk procurement costs have firmed up across regions, even as consumer prices have largely remained stable following the recent GST cut. Some regional price increases of ₹1–1.5 per litre have been reported in states such as Bihar and Andhra Pradesh.
Industry participants expect procurement cost corrections around April 2026, coinciding with the Ramzan period.
Margin Pressure and Pricing Decisions
Demand has been supported by lower prices and increased grammage post-GST cut, particularly in small stock-keeping units (SKUs). However, this has weighed on margins due to channel disruptions and rising supply-chain costs.
According to Systematix, dairy companies are now evaluating:
- Selective price hikes, or
- Rolling back higher volumes
to restore profitability amid tighter supply conditions.
Structural Shift Toward Value-Added Products
A key long-term trend highlighted in the report is the accelerating shift toward value-added dairy products such as curd, paneer, ghee, and ice cream.
Ice cream consumption, once largely seasonal, is now spreading across a wider window, while dairy products are increasingly bought on impulse. This shift is being driven by changing consumer preferences, with milk-based products gaining ground over carbonated beverages.
Changing Distribution Landscape
Distribution dynamics in the dairy sector are also evolving rapidly:
- Quick-commerce and e-commerce platforms are gaining prominence
- General trade is gradually losing market share
- Modern trade, while offering visibility, continues to deliver lower margins
These shifts are forcing dairy players to make more calibrated decisions around channel strategy and pricing.
As demand strengthens ahead of 2026 and supply remains tight, the sector is expected to undergo further recalibration, with pricing power, value-added products, and distribution efficiency emerging as key determinants of profitability.
