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Safe Milk Labs

Buoyant demand, inadequate supply to push milk prices higher

The run-up in milk prices is expected to continue in fiscal 2024, led by buoyant demand, constrained supply and under-recovery of costs in the previous two fiscals. Demand has rebounded since the easing of COVID-19-induced restrictions on social gatherings and the hotel, restaurant and café segment, and is being fed by rising consumption of value-added products in tune with higher disposable incomes and changing lifestyles.

Supply, however, has lagged due to constrained production resulting from inclement weather conditions. Underfed cattle due to higher fodder prices, and cattle health not being in the best condition due to unseasonal rainfall and heatwave conditions have lowered milk productivity.

This has resulted in a spurt in milk procurement prices, of 12 percent last fiscal and an expected 14 percent in the current one. However, players have not been able to completely pass on the increase in milk procurement prices, which account for nearly 60-70 percent of milk retail prices, considering the increase in retail prices was 6 percent and 8 percent, respectively, during fiscals 2022 and 2023. The sharp contraction in the profit margins of dairy processors last fiscal and in the current one bears this out.

Thus, we expect players to sharply increase retail prices by 7 percent in the next fiscal to make room for margin improvement.

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