According to a research, milk procurement costs have been rising, resulting in increased revenues for dairy firms but also putting pressure on margins in FY2023-24.
Dairy farmers have seen their costs rise due to rising animal feed prices and rural salaries.
“After a two-year era of decreased milk costs, milk prices have begun to rise. In a recent study on the dairy industry, analysts at ICICI Securities stated, “We note that higher milk prices would result in greater revenues for dairy firms, but will also result in lower margins in FY23-24.”
According to the survey, animal feed prices and rural salaries have been steadily rising, implying increasing expenses for dairy producers. Additionally, worldwide skim milk powder (SMP) prices are up 35% year over year, resulting in increased exports.
Meanwhile, out-of-home consumption, which accounts for 30% of India’s milk demand, has improved as well. According to the researchers, this has resulted in increased demand for milk, which has pushed prices up once again.
“We anticipate that increasing milk procurement prices will have a negative impact on all dairy firms.” While dairy firms’ revenues may rise owing to inflation, they feel their EBITDA margins have peaked in FY20-21 and predict a fall in FY22-24E,” they stated.
Wholesale milk prices in India increased by 4.8 percent on average year over year in April 2020.
“We believe the increase in wholesale pricing is due to the conclusion of the flush season and increased economic demand.” Over the last 12 months, global SMP prices have risen dramatically. In March 2022, they were rising 35.7 percent year over year and 5.8 percent month over month,” they stated.
Meanwhile, increasing food costs for bovines have come from raw material inflation in important resources such as maize, wheat, and soybean.