digit inflation in raw milk procurement prices, which was a result of the concurrent impact of multiple factors. On the one hand, farmers were facing sequential increase of feed and fodder prices as early as second half of 2021 due to climatic vagaries and input prices, part of which naturally resulted in price increase of milk output at the farm level and shrinkage in production, as farms became unviable. Furthermore, restrictions put by pandemic limiting farmers ability to buy or breed new cattle and the rapid spread of Lumpy Skin disease in many parts of the country, worsened the supply side further. On the other, consumers in the post pandemic period significantly increased their food basket size, especially for nutritious food such as dairy, rapidly increasing the demand side. The resulting supply-demand gap led to the sequential inflation like we had never seen before. We have also observed that in such turbulent times, buffalo dairy farms have borne the brunt more than cow farms, as buffalo farms have higher maintenance costs. This has pushed many farmers to shift from buffalo rearing to cow rearing. This naturally results in the fat percentage of the average milk collected to come down, as cow milk has lower percentage of fats. This has put serious pressure on the pricing of consumer fat products such as Ghee and Butter and a potential shrinkage of shopping baskets for these high value products in the coming quarter and the middleclass consumer may cut down on some of the consumption occasions and quantities. At the end of financial year 2022-23, most industry experts believe that we may have reached the peak of this inflationary trend. In most of our procurement regions, the farm prices have reached levels that make dairying quite lucrative attracting the farmers back into raising production. Early indications of normal flush also give the industry players confidence that raw material prices should soften towards the end of the calendar year 2023. Having passed on large part of the raw material price increase to the end consumers of dairy products, the economics of the business is expected to improve towards end of the financial year 2023-24. Dairy Market Forecast: As per the research report by IMARC Group, The dairy market in India size reached INR 14,899.8 Billion in 2022. This is 13.1% higher than their estimate of the industry in 2021, which is perfectly in line with the growth estimates from many other sources. Looking forward, the report calls out that the market is continuing the momentum with a CAGR of 13.2% during the next 5 year period, expecting to reach INR 31,185.7 Billion by 2028. One of the main factors driving the growth in the dairy industry in India, is the evolution of consuming households from an unorganized to a relatively organized sector, along with the increasing consumption of different value-added products, such as curd, paneer, ghee, butter, cheese, etc.. Multiple sources, including IMARC, estimate the share of organized and branded players contribution to liquid milk consumption at around 40%. While this itself gives tremendous opportunity for players like your company to grow the packaged milk business, the opportunity in value added products is even more attractive. As per estimates of the same reports, including IMARC, the percentage share of organized sector for Curd is around 9% and Paneer is around 4%. Even Ghee which is mostly organized has only around 19% of the consumption coming from organized sector. While these percentage contributions indicated are at a national level, even in the urban areas where your company operates, the contribution of organized sector for value added products like Curd, Paneer, Ghee, Ice-Cream, etc. do not exceed 50%. This gives tremendous potential and opportunity for driving growth, especially in Value added products segments. Increasing Demand for Milk and Value-Added Products: With an increase in the spending power of the population, the demand for milk and other value-added dairy products is expected to increase in the coming years. In addition to greater buying power, consumers are also becoming increasingly health conscious. This is aggressively driving the increasing share of dairy and other nutritious products in the consumer basket. For example, many consumers are replacing sugar-laden beverages with more nutritious milk-based beverages. There is also marked geo-spatial shift that we are witnessing, in terms of urbanisation bringing more and more consumers to urban centres with limited access to unorganized dairy players and the consolidation of organized retail segment and their increasing share of the shopper basket. Value-added products include curd, paneer, butter, cheese, paneer, ghee, flavoured milk, Cold-coffee, Lassi, Buttermilk, IceCream, etc., which are products that are produced by alteration and enrichment via use of additives, microbial fermentation or simply mixing with liquid milk. These products usually have marginal incremental cost, but much higher perceived value for the consumer, due to the special occasions in which it is consumed, the potential for differentiation and the nutritional benefits it offers the consumers. This gives the industry and your company to enjoy a much higher margin than base milk products. State-wise segment insights: Uttar Pradesh, Rajasthan, Madhya Pradesh and Gujarat are some of the major milk producing states in India. Uttar Pradesh and Madhya Pradesh are two of the largest milk-producing state because of high buffalo population, they are both largely unorganized. Gujarat and Rajasthan have numerous cooperative dairy milk unions, and primary milk cooperative societies play a crucial role in the production of milk. After these top states, Andhra Pradesh, Maharashtra, Punjab, Haryana, Tamil Nadu, Karnataka and Telangana appear on the list. Your company is present with its procurement network in all these states and in some of these states like AP, Maharashtra, Tamil Nadu and Telangana, your company’s procurement network is established with a strong and deep procurement presence. Many of the states where your company operates its procurement network are also among the most organized and 71 Board’s Report | Statutory Reports
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