Inflation is severely hurting the average Indian household, and again, the ubiquitous milk, which plays an essential role in most Indian households, is on the rise. Wholesale milk prices have increased 5.8% on an annual basis in India, and analysts believe that as demand picks up, consumers will have to shell out more in the coming months.
The demand for milk in India saw a rise as many parts of the country experienced a searing heat wave. On a year-on-year basis, milk prices in south India saw an uptick of 3.4%. Analysts at ICICI Securities trust that the rise in wholesale prices is attributable to the end of the flush season, increasing consumption, and an intense summer.
The cost of cattle feed has risen. Dairy companies in India have hiked milk selling prices by around 5–8% in the last five months.
A rise in prices of key raw materials has caused the rise in the cost of food for bovines. The prices of maize, wheat, and soybeans are rising, which will lead to higher feed prices at the dairy farmer’s end. Hence, we expect farmers to pass on any further inflation in key raw materials.
In the last 12 months, there has been a continuous rise in the price of skimmed milk powder (SMP) globally. In June 2022, prices rose 26.3% YoY and 3% MoM. “We believe the consequent attractive export opportunity may disturb the demand-supply equation in the Indian milk industry,” ICICI added.
Dairy companies are poised to benefit from the rising prices, as they are set to see revenue growth. But their operating profitability is set to take a hit of around 5% this fiscal because of the rise in procurement prices as well as transportation and packaging costs.
Also, the demand for ice-cream, curd, and flavoured milk items will peak this summer due to inordinately hot temperatures. The last two summers were affected by COVID-19. That, along with stable demand growth for household consumption-driven products such as ghee and paneer, a strong recovery in the HoReCa (hotels, restaurants, and café) segment, and price hikes from last fiscal, will drive 13-14% revenue growth in VAP this fiscal.