Dairy industry is passing through an interesting phase. There has been shortage of milk and milk products even at the onset of winter . The shortage can be seen in Cream , butter and unadulterated ghee also.
Apparently demand -Supply gap is the first measure for checking whether we can enter into any business or not. This way it is a right time to enter the dairy sector. When we look at the dairy economics then due to inflation the input costs have increased for both dairy farming as well as dairy processing. This way the profitability may take a hit.
In this year we have seen 4 times increase in prices of milk and milk products by all the large companies. The farmers are also getting highest milk prices for their produce in history. This way even inflation is not able to disturb the profitability. However dairy advisors still assess a drop in profitability by 4-5 % in the last two quarters of this fiscal.
Internationally there has been slump in milk production. Climate change and global warming is the key reason behind it. EU, Australia, New Zealand are under heavy distress. China’s imports have dipped sharply due to their post pandemic lockdowns and economic down turn.
This has led to slashing of most of the dairy products at Global dairy trade platform. Currently prices of Indian dairy commodities like SMP, butter and AMF is much higher than the international prices.
Dairy exports from Indian in first six months of this fiscal has increased by over 100% as compared to that of last year. India also saw a quantum jump in its dairy exports in last year. These may also be responsible for current shortage of milk fat in the country. We also do not have any critical inventory of SMP stocks . In his winter we hope to have some stocks build up by the companies, else coming summer of 2023 will see severe shortage of the milk and milk products.
So Is it the right time to enter dairy business ?
We at Suruchi Dairy Advisors suggest that it is probably the best time to enter. However the decisions on scale , location, product mix needs a deep dive and wherein we can help you conduct suitable viability studies. In dairy farming one will have to look at the last mile delivery model and a few other horticulture and farm based processed foods beyond milk also. Dairy farming business must clearly be seen as a fresh farm produce supply chain business. Setting it up for some large milk buyer may not be fruitful.
In milk processing the focus must be for functional dairy products with health and nutrition . It is better to set up a small plant for niche target group. Mass based fresh dairy products like milk, curd, paneer may not be viable at small scale. These have to be set up at large scale. Ice cream, Protein beverages and fermented milk products have a good potential for niche segments. UHT and long shelf life products including ambient yogurts are the future based segments. Suruchi can always help you developing pre-feasibility studies and implementing these projects on turnkey basis.
Where can I find most traction in dairy market ?
Currently the tier 2 and tier 3 markets are showing more traction in consumption of healthy foods than the Metros and Tier 1 cities. One of the reason is that the conversion of demand from unorganised or loose food products to hygienically packed dairy food products is high in these towns. There has been ample of scope of this shifting as currently the total organised dairy market is around 20% of the total milk produced in the country. Though we contribute 23 % to the global milk production .
Do contact us for knowing more on this subject.
Kuldeep Sharma
Dairy consultants since 1990
Suruchi Dairy Advisors
info@suruchiconsultants.com
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