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While domestic milk prices have remained firm during FY15, the demand for milk and milk products have remained high. Analysts expect, India's dairy sector to clock a 15.6 per cent growth rate during FY16.
Rating and research firm India Ratings & Research said that demand for dairy products have remained high owing to changing dietary habits and rising buying power. India Ratings expects GDP to grow at 6.5 per cent and agriculture at 2 per cent in FY16.
"Domestic prices have remained firm in FY15 despite the collapse of global milk and dairy product prices in 2014. The demand for milk and milk-based products remained high due to changing dietary habits and rising buying power. The dairy sector grew 12.6 per cent year-on-year (yoy) in FY13 and India Ratings expects it to grow at 15.6 per cent in FY16," the report adds.
The report goes on to explain further that seasonal variation in the production of milk has an impact on industry's margins. As dairy cooperatives, unlike their private counterparts, continue to procure milk from farmers at the regulated prices even during the flush season, their margins are affected more than private players. In fact, cooperatives also procure the excess milk available in the market at regulated prices.
It adds, "The sector will reap benefits from the federal government's increased focus on dairy development, enhanced availability of quality fodder, and promotion of bovine breeding, among other aspects of raising milch productivity. The government is also working on ensuring better transportation and storage options for milk and milk products."
Despite being the world's largest milk producer, India is not a significant player in the global dairy market. India's dairy exports have remained sluggish lately due to a drop in international dairy prices, sluggish global demand, rising cost of domestic milk production and the abolition of skimmed milk powder export incentives by the government in July 2014.
The research firm feels that "Although FY16 is likely to open up new export markets for India in view of Russia not planning to give up on its import embargo on dairy products from Europe, the share of dairy exports in India's total exports will remain low."
