Indian dairy industry to expand by 11% in 2022 driven by increasing per capita consumption

INDIA – The dairy industry in India is expected to grow by 9-11 percent in the 2021-22 financial year, driven by increasing per capita consumption of milk and milk products, according to a report by Icra.  

In the report, the investment information and credit rating agency highlighted revival in economic activities, changing dietary preferences due to rising urbanisation, and continued government support to the dairy industry as other factors driving growth.  

The report notes that industry expansion will be supported by domestic milk production increase of about 5-6 percent in the financial year 2021-22, supported by a normal monsoon and early onset of the flush season in some regions, the report said. 

Post the moderate impact of the pandemic, the industry witnessed a steady recovery in consumption across end segments, it added.  

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“There has been a healthy revival in demand in recent months with a sharp fall in fresh Covid cases and resumption in business activities with organized dairy segment seeing faster growth compared to unorganised segment and we expect the trend to continue,” Icra Vice President and Sector Head Sheetal Sharad said.  

She further noted that growth in the liquid milk segment, which accounts for over half of the dairy industry, is likely to remain stable (6-7 per cent in FY22), while the majority of value-added dairy products (VADP) categories are estimated to grow by 13-15 percent. 

Skimmed milk powder (SMP) prices are likely to improve and leading to the liquidation of stocks in FY22, according to the report.

Demand recovery of a few VADP categories such as frozen yogurt and ice cream among others is however expected to be slow, with consumers’ aversion for cold dairy products post-pandemic, noted Sharad. 

Recovery in demand in the dairy sector is also expected to push up raw milk procurement prices, which were subdued in FY21 due to weak demand.  

“Nevertheless, the higher procurement costs are not compensated by an equivalent increase in selling prices, which coupled with elevated fuel costs will result in contraction of 150 bps margins for dairy players in FY22,” she added. 

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Icra states that growth over the medium term would continue to be driven by demand from stable liquid milk consumption growth and steady recovery in institutional demand for the VADPs segment. 

The rating agency also expects private players to continue their capital expenditure on the VADPs segment, given its better margins.  

Further, Icra expects the industry to continue enjoying government support and favorable cost of funds leading to growing processing capabilities.  

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