India’s dairy industry is entering a critical phase of supply tightening and margin recalibration as it heads into 2026. Following a period of volatile cycles—ranging from pandemic-induced disruptions to a brief production surplus—the sector is now grappling with rising procurement costs and a structural shift in consumer behavior.
According to a recent expert session hosted by Systematix Institutional Equities, the industry is moving away from the “flush” surplus seen in early 2025 toward a more constrained environment.
The Pendulum Swings: From Surplus to Scarcity
The sector has navigated a turbulent three-year cycle. In 2022-23, a sharp drop in milk prices led to reduced cattle induction by farmers, causing a subsequent supply crunch. This was briefly reversed between October 2024 and March 2025, when production surged by nearly 25%, leading to a temporary surplus.
However, that surplus has rapidly evaporated due to a “perfect storm” of factors in late 2025:
Climate Disruptions: Unseasonal and early rains disrupted traditional summer supply patterns.
Geopolitical Tensions: Conflicts in northern border regions (including Punjab, Haryana, and J&K) impacted key milk-producing belts.
Festive Demand: A robust festive season further depleted existing inventories.
Procurement Costs and Pricing Pressure
As of December 2025, milk procurement costs have firmed up across the country. While retail prices have remained relatively stable following recent GST cuts, regional hikes of ₹1 to ₹1.5 per litre have already been reported in states like Bihar and Andhra Pradesh.
Industry analysts expect significant procurement cost corrections by April 2026, coinciding with the Ramzan period. In the meantime, dairy companies are facing a margin squeeze. To restore profitability, many firms are now evaluating:
Selective Price Hikes: Targeted increases on specific products.
Volume Rollbacks: Reducing “extra grammage” / volume offers that were introduced post-GST to stimulate demand.
Structural Shifts: The Rise of “Impulse” Dairy
The report highlights a permanent shift in how Indians consume dairy. Consumers are increasingly moving away from carbonated beverages toward milk-based alternatives.
Value-Added Products (VAP): Items like curd, paneer, ghee, and ice cream are seeing accelerated growth.
Non-Seasonal Demand: Ice cream, once a strictly summer product, is now seeing consistent year-round demand.
Distribution Evolution: General trade is losing market share to Quick-commerce (Q-commerce) and e-commerce platforms, which are becoming the preferred channels for urban consumers.
As the industry prepares for 2026, the focus is shifting from raw volume to value-driven growth. While India remains the world’s largest milk producer (accounting for 24-25% of global output), the next year will be defined by how well companies manage their supply chains and whether they can successfully transition to a “premium” product mix to offset rising input costs.
With the government’s “White Revolution 2.0” initiatives and new trade pacts on the horizon, 2026 is poised to be a pivotal year for India’s journey from a domestic giant to a more competitive global dairy player.
