September 11, 2013

India's dairy market to grow 13% to 15% annually until 2020

With the increasing consumption of value-added products and the value chain becoming more organised, India's dairy market will continue to grow at about 13% to 15% annually until 2019-20, according to a report by Rabobank.

"Indian dairy is emerging as a strong consumption story, with the market growing at a pace. We expect this trend will gain momentum over the next four to five years driven by increasing consumption of value-added products and the formalisation of the value chain," the report said.

According to the report, Rabobank expects this segment to grow at a Compounded Annual Growth Rate (CAGR) of 13% to 15% until 2019-2020. The market share of value-added products is likely to increase to 31% from the current 21% during this time period.

The report also stated that the main factors driving growth are increased consumer interest in higher protein diets, better affordability due to growing disposable incomes and rising awareness and availability of dairy through channels such as organised retail and food service segments.

In 2012-2013, India's total organised dairy sector is about US$10 billion, comprising cooperatives and private players who control the supply chain linkages.

"For years, the Indian dairy market has remained an enigma for global dairy players," said Rabobank's analyst, Shiva Mudgil, adding that the market is currently in a transition phase.

He pointed out that high market growth and favourable market conditions may create a present opportunity for global players to engage with the Indian dairy sector.

Global dairy companies were encouraged to engage with India in the past due to its large consumption market, its existing milk supplies and established consumer preference for dairy products, the report said. However, the challenging environment, with its informal fragmented supply chain, raw milk quality concerns, small base for value-added dairy products and ever-changing trade regulations, proved a challenge and a strong disincentive.

Nevertheless, India's formal dairy market has shown strong growth in recent years, which may accelerate due to product innovation, enabling government policies and industry consolidation. Rabobank expects this acceleration will aid industry margins to improve by attaining greater scale, higher capacity utilisation and an increasing contribution from value-added products in overall dairy revenues.