In the current fiscal year, the Indian Dairy sector is expected to grow by 9 -11%, however, profit margins are likely to be impacted by higher procurement prices and operating costs.
Recently, the Indian Council on Agricultural Research (ICRA), in its report on the Indian Dairy Sector said that domestic milk production is estimated to increase by 5-6% in FY2022, with a normal monsoon and an early onset of the flush season in some regions. The report says – “Post the moderate impact of a pandemic, the industry has witnessed steady recovery in consumption across end-segments. This has been further aided by improving pace of vaccination, fall in fresh Covid-19 cases, revival in economic activities and demand from institutional and HoReCa segments, which too has recovered sharply.”
The report states that – “Liquid milk sales continue to be supported by inelastic nature of demand while increasing consumption of value-added dairy products (VADPS) like ghee, butter, curd, cheese, etc. support the overall dairy sales.” The agency said - “With stable milk procurement and lower demand amidst pandemic during FY2021, industry players have converted excess liquid milk to skimmed milk powder (SMP) thus resulting in elevated inventory levels and subdued SMP prices. The same is expected to be liquidated in the current year supported by revival in demand.”
Also, the agency observed – “Revival in economic activities, increasing per capita consumption of milk and milk products, changing dietary preferences due to rising urbanization and continued government support to the dairy industry shall drive demand.”
Sheetal Sharad, ICRA’s Vice President, and sector head said – “Demand recovery was stunted by a resurgence in Covid – 19 cases in the Q1 of FY2022, and the impact was severe in institutional segments. However, there has been a healthy revival in demand in recent months with a sharp fall in fresh Covid cases and resumption in business activities.”
According to her – “The organized dairy segment, which accounts for 26-30% of the industry (by value), has seen faster growth compared to unorganized segment and the agency expects the trend to continue. Growth in the liquid segment, which accounts for over half of the industry, shall remain stable (6-7% in FY2022) while the majority of VADP categories is estimated to grow by 13-15%.” However, she also pointed out – “demand recovery of a few VADP categories such as frozen yogurt, ice-cream, etc., shall be slow with consumer’s aversion for cold dairy products post-pandemic.”
“With the expected recovery in demand during the festive season, SMP prices are likely to improve, leading to the liquidation of stocks in FY2022. Raw milk procurement prices, which were subdued in FY2021 due to weak demand, have increased in the fiscal supported by a recovery in demand. Nevertheless, the higher procurement costs are not compensated by an equivalent increase in selling prices, which coupled with elevated fuel costs shall result in contraction of 150 bps margins of dairy players in FY2022” – she added.
