Dairy sector growth to stay high for now

A study by ICICI Securities estimates India’s dairy sector to grow annually in low double-digits for the medium term. Triggered, it says, by an increase in per capita consumption of milk, with improving affordability, shift towards premium milk and an increase in consumption of value-added products. This has also prompted many global players to enter India, through the inorganic route, and commit to big investments in value-added products. “Milk production in India has been growing at a four per cent compounded annual growth rate (CAGR) over 1991-92 and 2015-16. Milk price inflation averaged around seven per cent per annum over the same timeframe. Dairy exports from India are negligible, given that the country produces largely buffalo milk and that indigenous value-added products are considerably different from those in developed countries. Hence, the milk produced in India will be largely consumed in the domestic market and the sector would continue to grow in low double-digits,” said Aniruddha Joshi, analyst at ICICI Securities. Strengthening of direct milk procurement, the right product mix and distribution expansion would be key for revenue and profit growth. Indian consumption trends are still evolving and products such as cheese, spreads and premium milk will need investment, despite strong growth potential, in the foreseeable future. Companies focusing more on fresh milk products such as dahi (curd), buttermilk or paneer will enjoy healthy profitability and return on capital. Commodity Trading Tips