India’s dairy industry is entering a phase of tighter milk supply and margin recalibration after navigating sharp cycles of disruption, surplus and recovery over the past three years, according to insights shared at an expert session hosted by Systematix Institutional Equities.
The post-COVID period of 2022–23 proved particularly challenging for the sector, marked by a steep fall in milk prices that failed to cover farmers’ production costs. This led to reduced cattle induction and a sharp decline in milk output across key regions, the report noted.
From mid-2023, renewed farmer engagement by leading cooperatives and private dairy companies, including the rollout of sustainable fodder programmes, helped restore confidence and revive supply. These initiatives resulted in a strong rebound during the October 2024–March 2025 flush season, when milk production surged by nearly 25 per cent, creating a temporary surplus.
Dairy companies responded by expanding their value-added product portfolios, strengthening cold-chain infrastructure, and increasing advertising and promotional spends to absorb excess supply. Large players also stepped-up backend investments and last-mile distribution to manage inventories.
However, the surplus proved short-lived. In 2025, early and unseasonal rains disrupted the traditional summer demand-supply cycle, while geopolitical developments, including the India-Pakistan conflict, impacted major northern milk belts such as Punjab, Haryana and Jammu & Kashmir. Strong festive demand further depleted inventories, leaving the industry with limited surplus heading into late 2025.
As a result, milk procurement costs have firmed up across regions, even as consumer prices have largely remained stable following the recent GST cut. Regional price increases of ₹1–1.5 per litre have been reported in states such as Bihar and Andhra Pradesh. Industry participants expect procurement cost corrections around April 2026, coinciding with the Ramzan period.
Systematix noted that while demand has been supported by reduced prices and higher grammage—particularly in small stock-keeping units—these measures have pressured margins due to higher supply-chain costs and channel disruptions. Companies are now evaluating selective price hikes or volume rollbacks to restore profitability.
The report also highlighted a structural shift toward value-added dairy products such as curd, paneer, ghee and ice cream. Ice cream demand, once concentrated in peak summer months, is now spreading across a longer seasonal window, while impulse purchases of dairy products are rising as consumers shift from carbonated beverages to milk-based alternatives.
Distribution dynamics are evolving rapidly, with quick-commerce and e-commerce platforms gaining share, while general trade continues to lose ground. Modern trade, despite offering greater visibility, remains a lower-margin channel, prompting dairy players to adopt more selective and cautious channel strategies.