India’s dairy consumer is changing — And the industry must evolve beyond volume growth

A significant part of India’s dairy economy that operates outside the organized sector, in many cases, creates more value per litre than the organized sector does.
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K_MURALI_KUMAR

For decades, India’s dairy sector has stood as one of the country’s most compelling development success stories. From a milk-deficient nation, we have emerged as the largest producer of milk in the world. This transformation helped in addressing a priority—ensuring availability of milk and integrating millions of farmers into the value chain.

But as we reflect on this achievement, an important question confronts us: Have we solved only for volume, while leaving value behind?

Because the next phase of India’s dairy journey will not be defined by how much more milk we produce, but by how much value we are able to create across the value chain—most importantly for the farmer.

Scale of challenge

A closer look at the structure of the industry reveals the scale of this challenge. Of the roughly 150 million tonnes of marketable surplus milk in the country, the organised sector—cooperatives and private dairies combined—collects only about 55 million metric tonnes. The remaining 90–95 million tonnes continue to flow through informal and unorganized channels.

In effect, a significant part of India’s dairy economy that operates outside the organized sector, in many cases, creates more value per litre than the organized sector does.

This reality becomes especially relevant in the context of the recent increase in milk procurement prices. Across the industry, there has been visible concern around margin pressures, with many players waiting for raw milk prices to soften.

Farmers struggling to keep pace with rising costs

According to a recent commentary by Kuldeep Sharma, Chief Editor of dairy journal Dairy News 7×7, the nominal income of dairy farmers between FY19 and FY25 has grown at a CAGR of about 11.5 per cent, while real income growth has been closer to 5 per cent. This is lower than the overall real GDP growth during the same period, indicating that dairy farmers have struggled to keep pace with rising input costs and inflation.

If farmer economics do not improve in a sustained manner, the long-term stability of the dairy ecosystem itself is at risk. The viability of the producer is the foundation on which the entire industry rests.

We have consistently maintained the need to double the nominal income of our farmer partners over the next five years. In order to achieve this, a CAGR of approximately 14.5 per cent is required against the historic growth of ~11.5 per cent delivered by the sector. This is only possible by creating and capturing greater value in the products sold.

At the same time, the demand environment for dairy in India remains structurally strong. Over the past five years, consumption has grown at an estimated 4–5% annually, driven by urbanisation, rising incomes, increasing awareness of nutrition, and a shift towards protein-rich diets.

Presenting a paradox

Supply, however, has grown at a slightly slower pace—closer to 3–3.5 per cent. While the gap may appear small, in a system of India’s scale, even a modest divergence sustained over several years can create significant supply-demand imbalances and upward pressure on prices. Climate variability only adds to this complexity.

India today presents a paradox. We are the largest producer of milk in the world, yet we import high-value dairy proteins such as whey protein concentrate and milk protein concentrate, while exporting lower-value commodities like skimmed milk powder.

India has already demonstrated that it can solve for scale. The next challenge is to solve for value. Because unless we get this equation right, we will continue to see a situation where volumes grow, but value remains constrained, limiting the potential of farmers, businesses, and the sector as a whole. The opportunity ahead is immense. But realising it will require a conscious move beyond volume growth—and a collective commitment to capturing the true value of what we produce.

The author is CEO, Heritage Foods Limited

Published on September 19, 2026