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Indian dairy and cattle farmers have been barely recovering their input costs this year, thanks to the increase in fodder and fertiliser prices. As a result, dairy manufacturers have resorted to several price hikes.

The flush season, or the period when milk production is high, will play a key role in moderating the prices of milk and dairy products. The flush season starts in September and ends in March.

While there’s no clarity on how much the prices will ease from a high base, Bhupendra Suri, CEO of Godrej Jersey, says the flush season will give some relief.

“Around September, October, there is a flush. The cows have more carbs and they have more milk coming. And because of the supply-demand equation, there is some fall in prices, which should give some relief to dairy margins. But we don’t know for sure how much the flush will be and whether the prices will fall less or more. Those are still very open questions,” Suri told Business Insider India.

The changes in prices, Suri said, should reflect in October if other macroeconomic factors remain stable.

“Rainfall has an impact on overall milk production and then there’s a lumpy cow disease in Gujarat which has created a severe shortage of milk. So we will see in the months to come. And the margins of the industry will be a big question,” said Suri.

The lumpy skin disease has affected 11.2-lakh cattle, including 49,682 deaths, in 165 districts. The UN’s Food and Agriculture Organisation (FAO) has described it as “a vector-borne pox disease” that is “characterised by the appearance of skin nodules.”

‘Procurement prices at unimagined levels’

The farm prices of raw milk have increased by about 10-11% in the last six months. This has led to three subsequent increases in consumer prices too.

Suri said that in the commodity market, milk margins have always been tight. This year, it has touched a new high.

“There’s massive inflation in the environment, a never-seen-before inflation. Milk procurement prices are at numbers that are unheard of and unimagined. Ukraine has had an impact on everything. So multiple things are leading to a huge inflationary run on the procurement costs and all the other costs to run the business,” said Suri.

The only silver lining, Suri said, is that volumes have gone up. Due to the surge in milk prices, consumers have either moved to cheaper options or are buying smaller packs more frequently.

“I would say [volume increase] is a drop in the ocean compared to the inflationary pressure,” added Suri.

Godrej Jersey generated a revenue of about ₹12 billion in the financial year 2022. Earlier called Creamline Dairy Products, the company was acquired by Godrej Agrovet in 2015.

Value-added products save the day

As margins narrow, the Southern India-focused Godrej Jersey has been milking the high demand for value-added products such as curd, buttermilk, ghee, lassi, flavoured milk, etc. It has witnessed over 69% year-on-year growth due to value-added products in its portfolio.

“The growth rate for at least the value-added products will be a super-high double digit level, and milk will also show some decent growth, largely because every piece of the market that was shut down is opening up. The problem which we will be facing is in the margin,” said Suri.

Milk occupies 70-80% of the market consumption share of the overall dairy industry, as per Suri. Of the rest, curd makes up 10-12% and newer products such as flavoured milk and yoghurt take up the remaining share.

Due to value-added products’ extended shelf life, Godrej Jersey has been focusing on expanding its presence across the country. Currently, it has a strong presence in South India.

As a part of its expansion plan, Godrej Jersey recently invested ₹20 crore in a milk processing plant in Keshavaram, Telangana. It has the capacity to make 20,000 litres per day and will be soon increasing it to 70,000 litres of milk per day.

Source : Business Insider 02 sep 2022 by Karuna Sharma