India's Dairy Sector Faces Supply Constraints and Rising Costs in 2026
India's dairy sector is transitioning into 2026 with notable challenges, including constrained milk supply and increased procurement costs. Insights fr om a session by Systematix Institutional Equities highlight a period of supply tightening and margin recalibration, exacerbated by strong consumer demand.
The past three years have seen significant fluctuations in supply, starting with a price collapse post-COVID in 2022–23. During this period, milk prices fell below production costs, discouraging cattle induction and leading to reduced output. Efforts by cooperatives and private players to engage at the grassroots level through sustainable fodder programs helped restore production, leading to a rebound in the October 2024–March 2025 flush season, wh ere milk output increased by nearly 25%.
In response to the temporary surplus, dairy companies expanded their value-added product mixes and strengthened cold-chain infrastructure. They also improved backend systems and last-mile distribution to manage inventory. However, early and unseasonal rains, along with geopolitical tensions such as the India-Pakistan conflict, disrupted production patterns in 2025, particularly affecting northern milk-producing regions like Punjab, Haryana, and Jammu & Kashmir.
These disruptions, coupled with strong festive demand, have resulted in inventory depletion and a tightened supply outlook. Consequently, milk procurement costs have risen across regions, despite retail prices being held steady following a recent GST reduction, adding pressure on margins.
Going forward, industry participants anticipate cost adjustments around April 2026, coinciding with the Ramzan period. There is also a noticeable shift in consumer preferences towards value-added dairy products such as curd, paneer, ghee, and ice cream. Additionally, distribution channels are evolving, with quick commerce and e-commerce gaining traction over traditional general trade.
