Consumer Food- Dairy -

Positive

April 2023 l Industry Outlook

Synopsis: The outlook for Indian dairy sector remains positive on the back of increasing population, increase
in per capita consumption, increase in expenditure on package food, brand awareness, urbanization and
government focus on Dairy Industry.

Demand for milk and milk product have seen revival post pandemic.
India is the leading producer and consumer of dairy products in the world. Activities surrounding dairy have been
an essential part of the rural Indian economy giving employment to many. India also has the largest bovine
population in the world and the Indian dairy industry offers a profitable opportunity. India is the largest producer
of milk in the world, accounting for 24% of global milk production in the year 2021-22, according to Food and
Agriculture Organization Corporate Statistical Database (FAOSTAT).

Chart 1: Production Trend of Milk and Milk products

Milk Milk Powder Ghee Butter Ice-cream
('000 litres) (Tonnes) (Tonnes) (Tonnes) ('000 litres)
FY19 68,61,400 2,62,071 1,69,420 1,31,106 1,96,275
FY20 67,23,700 2,18,368 1,69,813 97,486 2,01,750
FY21 64,07,700 2,69,367 1,72,663 1,10,378 1,17,766
FY22 66,93,800 2,68,913 1,80,816 1,16,630 1,89,277

11MFY22 61,20,800 2,44,599 1,65,524 1,06,689 1,58,663

11MFY23 63,30,600 2,28,854 1,64,766 96,574 2,30,086
11MFY23 vs
3.43% -6.44% -0.46% -9.48% 45.02%
11MFY22
Source- CMIE

Overall, the production of milk and milk products (like milk, ice cream) was higher in 11MFY23 as compared to
11MFY22. During the period, the milk prices continued to rise led by healthy demand on account of steep increase
in milk procurement prices due to high fodder prices and onset of lumpy skin disease. With revival of Horeca
(Hotels, Restaurants and Catering) segment and increasing population coupled with health consciousness
particularly post pandemic, inclination towards healthier high protein diet and higher demand for value added
products, the dairy industry in India is expected to propel the growth of industry.

Amongst all the products, the production of ice cream has increased the most during 11MFY23 as well as 11MFY22
especially when compared to 11MFY21, as there was a significant demand dip owing to pandemic. However, the
summers which were hotter than usual in FY23 led to increased demand for ice-cream in 11MFY23.

Usually, the production of milk and milk products is highest in second half of the year – October to February are
the months when maximum milk is produced due to flush season.

In FY22, the demand for milk and milk derivative products has improved as compared to FY21. While in FY22, milk
and milk products like ghee, butter increased gradually, the production of milk powder depicted marginal de-growth
of 0.17% because of excess stock of milk powder in FY21.

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 Consumer Food- Dairy

The product which grew exponentially post the Covid-19 relaxations is ice cream, which has grown by ~61% in
FY22 as compared to FY21. The demand for ice creams is expected to be growing at the same rate in coming years
because of the pent-up demand from the last two years of pandemic.

Chart 2: Net Sales Trend (in crores)

Net Sales Trend

18,000 16,488
16,000 15,256 15,000
14,574
13,548
14,000
12,130
12,000
10,000
8,000
6,000
4,000
2,000
-
FY19 FY20 FY21 FY22 9MFY22 9MFY23

Note: Aggregate analysis of 11 listed players

Source: Ace Equity

Although consumption of milk and dairy products is a dominant part of Indian consumers diet, however, in FY2021,
industry witnessed a contraction in demand as Horeca segment was completely shut due to pandemic and various
supply chain disruptions which incurred a marginal decline of 1.11% in revenue growth during the period. With
gradual recovery, net sales witnessed 13% growth in FY22 compared to FY21. With consistent growth in demand
in 9MFY23, revenue grew by 24% when compared with the corresponding period of FY22.

Chart 3: Operating Profitability margin of listed players

Operating Margins (in %)

12%
11%

10% 10%
9%
8%
8%
6%
6% 6%

4%

2%

0%
FY19 FY20 FY21 FY22 9MFY22 9MFY23

Note: Based on aggregate analysis of 11 listed players

Source: Ace Equity

Over last one year, with almost stagnant milk output leading to tight supply and increase in procurement price
resulting in elevated prices which impacted the margins of various players during 9MFY23 as against 9MFY22.

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 Consumer Food- Dairy

Owing to muted flush season and increased input cost for milk production, milk procurement prices continued to
remain high.

Chart 4: Milk Prices (India Monthly Average Price in Rs./litre)

Milk Prices (Rs./litre)

60

50

40

30

20

10

0
May-18

May-19

May-20

May-21

May-22
Jan-18

Jan-19

Jan-20

Jan-21

Jan-22

Jan-23
Sep-18

Sep-19

Sep-20

Sep-21

Sep-22
Nov-18

Nov-19

Nov-20

Nov-21

Nov-22
Mar-18

Jul-18

Mar-19

Jul-19

Mar-20

Jul-20

Mar-21

Jul-21

Mar-22

Jul-22

Mar-23
Source: Department of Consumer Affairs

The above chart indicates the increasing trend of milk prices over past ten years. The primary reason for this
season’s increase is steady increase in the cost of production coupled with rise in fodder cost due to shortage of
fodder and rising cereals prices (ingredient used in feed). Moreover, the onset of lumpy skin disease had caused
disruption in the population of cows and buffaloes.

Going forward, milk prices may likely to remain firm in the upcoming summer season due to tight demand supply
balance and fodder cost pressures.

Outlook- Positive

Milk and milk product are expected to be driven by increasing per capita consumption and robust
demand from HoReCa

India has large vegetarian population which mostly depends on milk as a key source of protein. According to
Ministry of Fisheries, Animal Husbandry and Dairying, milk production today is growing at the rate of two per cent
in the world whereas in India, its growth rate is more than six per cent. The relaxation on covid-19 restrictions saw
a growth in consumption of milk and by products. There has been healthy demand from the HoReCa segment as
they witnessed increased consumption post Covid-19 pandemic restrictions. There has been steady increase in per
capita availability of milk over past 10 years on account of initiatives (such as Intensive Dairy Development Scheme,
Strengthening Infrastructure and Clean Milk Production Scheme, National Programme for Cattle Breeding, National
Dairy Plan etc) taken by government to increase the milk production in view of increasing population. The per
capita availability has increased from 289 gm/day in 2011-12 to 444 gm/day in 2021-22 (registering a CAGR of
4.39%) according to Ministry of Fisheries, Animal Husbandry and Dairying.

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 Consumer Food- Dairy

Chart 5: Per Capita Availability of Milk

Per Capita Availability (Gram/Day)

500
444
427
450 406
390
400 370
351
319 333
350 303
289 296
300
250
200
150
100
50
0
2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22

Source: Basic Animal Husbandry Statistics - 2022

The Union budget for 2022-23 included 20% raise in allocation towards ‘Rashtriya Gokul Mission’ and ‘National
Program for Dairy Development’ with an objective to increase the productivity of the indigenous bovine population
and quality milk production which is expected to benefit about 8 crore dairy farmers. With a focus on livestock
health and disease control programme, the Department of Animal Husbandry and Dairying received a boost in the
allocations by almost 40% (an increase from Rs. 3105.17 crore in 2022-23 revised estimates to Rs. 4327.85 crore)
announced in the Union Budget 2023-24. Moreover, the incentives announced in Union Budget 2023-24 for
cooperatives might increase competition for the private players further on the basis of low tax rates for new
cooperatives planning to put manufacturing facilities.

In the near to medium term, the Russia-Ukraine crisis has led to increase in input costs of energy, packaging,
logistics and cattle feed cost which the industry players in turn are passing on such elevated costs to end users.
There has been continuous rise in prices of milk and milk products.

Recently, the cattle have been affected by a disease called Lumpy Skin Disease which is fatal to the cattle. The
Indian Council of Agriculture Research has been developing vaccine for the disease which is expected to be highly
effective.

Monsoon plays a significant role in the industry which determines the food-grain and cattle feed prices which is the
major cost for dairy farmers and going forward with the progression of monsoon (which is expected to be normal
this season according to India Meteorological Department) along with availability of feed and fodder must be the
deciding factor for the prices.

The Indian Dairy sector continues to remain a prominent vehicle by providing improved livelihoods for millions of
farmers in India as well as providing social and economic opportunities. Overall, the outlook of Indian dairy sector
remains positive due to increasing population, increase in per capita consumption, increase in expenditure on
packaged food, brand awareness, urbanization, and government support. The growth would also be supported by
increase in the demand for value-added milk products. Although the Lumpy Skin Disease had caused disruption in
the milk collection as the disease is causing death of cattle and the impact may still expected to be seen in the near
term.

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 Consumer Food- Dairy

Contact
Tanvi Shah Director [email protected] 022 6837 4470
Vikram Thirani Director [email protected] 022 6837 4400

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