The demand for milk in India saw an uptick as multiple parts of the country experienced a searing heatwave. Milk prices in south India saw an uptick of 3.4% on a year-on-year basis. Analysts at ICICI Securities believe that the rise in wholesale prices is attributable to the end of the flush season, increasing consumption, and intense summer.
Milk procurement prices have been pushed upwards on account of an increase in cattle feed prices as well. Dairy companies in India have hiked milk selling prices by around 5-8% in the last five months.
“We believe the dairy companies need to raise prices again in coming quarters to pass on higher milk procurement prices,” the brokerage firm wrote in a note on Friday.
Food prices, including the staples, have seen an increase across the board. Benchmark wheat futures have surged by around half this year, palm oil has risen almost 40%, while a UN gauge of dairy prices is up 14%.
“Rise in prices of key raw materials has resulted in higher cost of food for bovines. We note the prices of maize, wheat and soybean are rising, which will lead to higher feed prices at the dairy farmer end. Hence we expect farmers to pass on any further inflation in key raw materials,” it added.
The prices of skimmed milk powder (SMP) globally have seen an increase over the last 12 months as well. Prices rose 26.3% YoY and 3% MoM in June 2022. “We believe the consequent attractive export opportunity may disturb the demand-supply equation in the Indian milk industry,” ICICI Sec added.
Dairy companies are poised to benefit from the rising prices, as the companies are set to see revenue growth. But their operating profitability is set to take a hit, to around 5% this fiscal, because of the rise in procurement prices, as well as transportation and packaging costs.
Aditya Jhaver, Director, CRISIL Ratings said “We expect demand for ice-cream, curd and flavoured milk items to peak this summer due to inordinately hot temperatures. The last two summers were affected by Covid-19. That, along with stable demand growth for household consumption-driven products such as ghee and paneer, strong recovery in the HoReCa (hotels, restaurants and café) segment, and price hikes of last fiscal will drive 13-14% revenue growth in VAP this fiscal.”