Dairy Industry May Hike Milk Prices Again

Commodities for which the ordinary Indian consumer is now paying a higher price are on the rise, including milk, which is a staple in most Indian families. In India, wholesale milk prices have risen 5.8% year over year, and analysts anticipate that as demand grows, customers may have to pay more in the coming months.

The demand for milk in India increased as a result of an intense heat wave that hit numerous sections of the nation. On an annual basis, milk prices in south India increased by 3.4 %. The rise in wholesale costs, according to analysts at ICICI Securities NSE -0.73 %, is due to the conclusion of the flush season, increased consumption, and hot summer.

Due to a rise in cattle feed prices, milk procurement prices have been pushed upward. In the last five months, dairy companies in India have increased milk selling prices by 5-8%.

In a report issued on Friday, the trading company stated, "We expect the dairy industry will need to raise prices again in the coming quarters to pass on higher milk procurement prices."

The cost of food, particularly essentials, has risen across the board. This year, benchmark wheat futures have increased by almost 50%, palm oil has increased by over 40%, and a UN dairy price index has increased by 14%.

"Rising raw material prices have resulted in higher food costs for bovines. We've seen that maize, wheat, and soybean prices are rising, which will result in increased feed prices for dairy farmers. As a result, we expect farmers to pass on any additional inflation in key raw supplies," the report continued.

Skimmed milk powder (SMP) costs have also risen in the previous 12 months over the globe. In June 2022, prices increased by 26.3 % year over year and 3% month over month. "We believe the resulting attractive export possibility may disturb the Indian milk industry's demand-supply equation," ICICI Sec stated.

Milk Price Hike Hits Dairy Businesses

Dairy businesses are expected to gain from the increased prices since income is expected to increase. However, due to rising procurement prices, as well as transportation and packaging expenses, its operational profitability is expected to drop to roughly 5% this fiscal year.

"We expect demand for ice cream, curd, and flavored milk items to rise this summer due to inordinately high conditions," said Aditya Jhaver, Director, CRISIL NSE 0.72 percent Ratings. Covid-19 has had an impact on the previous two summers.

This, together with sustained demand growth for consumer-driven items like ghee and paneer, a robust rebound in the HoReCa (hotels, restaurants, and café) category, and price rises from the previous fiscal, will generate VAP revenue growth of 13-14% this fiscal."