Why some Indians are willing to pay a premium for dairy products

Premium milk brands from private dairy farms are slowly changing the way a segment of Indians consume milk and its by-products

Natasha Desai is at her local kirana shop in Pune’s Aundh neighbourhood. The shop, which was closed for a few weeks, was just doing home deliveries in the interim, and is now open with a new look and avatar. “What astounded me is the variety I found in the kirana’s three fridges. It’s not just ice cream or milk, there was plain yoghurt, flavoured yoghurt and all kinds of cheeses and a few paneer brands!”

Desai, who is 48, is a homemaker who grew up in an India where the only choices available were unbranded milk and Amul butter. Today, decades later, the choices the Indian consumer faces are wide and far ranging. Mumbaikar Kabir Peerbhoy, 35, is particularly pleased by the variety of milk and cheeses available now, “It’s not just Amul [as a choice], or even gourmet stores like Foodhall and Nature’s Basket. I have the option of buying different types of milk from my local private dairy too, now.” In Chennai, a young chef in her 20s (who wishes to stay anonymous) is in the process of identifying a vendor she would like to work with for her all-day café that will launch later this year. “I am hoping to finalise a deal with a small dairy farm that also supplies to a bigger private dairy. Their produce is impressive,” she shares.

Paying top dollar

Until a few years ago, most Indian households had a milkman coming to their doorstep. “I switched to a private dairy once my son was older. I know that I am paying a premium price but it’s okay, I can afford it right now,” says 39- year-old TV producer Shreela Bhatia (name changed upon request),who resides in an upmarket gated community in Mumbai. “By opting for a premium product, there is no danger of adulteration and both my son and daughter much prefer the taste.”

Consumers like Bhatia, Desai, Peerbhoy and the chef The Established spoke to are all spoiled for choice. A vital part of India's agritech industry, the milk segment is undergoing a vast change in terms of modernisation, the range of products available, their pricing as well as the quality of products. What’s driving the change though? A wider portfolio of goods and the willingness of the tech-savvy consumer to pay top dollar for non-traditional brands and products.

Old and new players

MNCs like Nestle and Britannia, despite their vast background in milk products and larger resources, have stayed within conservative parameters regarding product diversification. While Nestle is a producer of UHT milk (ultra-high temperature or ultra-pasteurised) and condensed milk, Britannia has recently diversified into flavoured milks and yoghurts, a step ahead from their mainstay dairy products: butter and cheese. Today, private dairy companies and brands like Pride of Cows (Pune), Schreiber Dynamix Dairies (Mumbai), Milk Mantra (Odisha), Humpy Farms (Pune), Milky Mist (Tamil Nadu), Gyan Dairy (Lucknow), Sarda Farms (Nashik), Milk & Meadows (Jaipur), Country Delight (Gurugram), Epigamia (Mumbai), Thacker Dairy (Kolkata), Mr Milk (Pune), Heritage Foods (Hyderabad), Milk Magic (Sehore, Madhya Pradesh), Sid’s Farm (Hyderabad) and more have made their mark in the great Indian dairy bazaar.

The Indian dairy industry, which used to be largely unorganised, fragmented and lacking in technological advancements, is now seeing a surge of new companies, brands and new products, along with the rebranding of existing ones. The organised dairy sector was, and continues to be, dominated by private cooperatives: Gujarat-based dairy cooperative society Amul, and the Karnataka Milk Federation are the two most dominating players in the country. Fourth-generation dairy entrepreneur Sarfaraz Irani of Parsi Dairy Farm (PDF) in Mumbai says, “There’s a lot of competition in the market right now, and each of the new players has a focused story for their products.”

Unlike traditional dairy cooperatives (other than Amul and the like) which sell packaged milk, the new-age companies sell premium milk and products such as paneer, cheese, ghee, yoghurts, milkshakes and mithais. While Milky Mist and Epigamia are focused on dairy products, around 20-30 per cent of revenues for Milk Mantra and Gyan Dairy are from milk products. Companies like Nashik-based Sarda Farms and Jaipur-based Milk & Meadows are focused on a farm-to-home mode, that is, the milk is sourced from a single farm and distributed to homes within six-seven hours of milking through a subscription model. Others like Thacker Dairy not only work with a vast network of farmers but also have their own gaushalas. “The Indian market is developing and now is out of its “milk-feeding infancy stage”. Now you can pick a readymade smoothie if you want. If you want butter, it’s not necessary that you will buy Amul. Earlier we had no choice,” says Nishit Thacker of Thacker Dairy.

Talking numbers

“The land of milk and honey,” is how several family elders have described India to their offspring. They weren’t so far off the mark. In the 1976 Shyam Benegal film, Manthan (The Churning) starring Girish Karnad, we learned the stunning story about Operation Flood and a man called Verghese Kurien. As we all know, it was Kurien’s dogged tenacity and billion-litre idea, ‘Operation Flood,’ which made dairy-farming India’s largest self-sustaining industry. Kurien pioneered the Anand model of dairy cooperatives and replicated it nationwide. Milk from all farmers was welcomed and 70–80 per cent of the consumer price was paid in cash to dairy farmers who controlled the marketing, procurement and processing of milk and milk products as the dairy's owners in the cooperative model.

The dairy market in India reached a value of ₹13,174 billion in 2021. The market is expected to get to ₹30,840 billion by 2027, exhibiting a CAGR of 14.98 per cent for the years 2022-2027. India ranks number one in milk production, contributing 23 per cent of the global milk production. Milk production in the country has grown at a compound annual growth rate of about 6.2 per cent to reach 209.96 million tonnes in 2020-21 from 146.31 million tonnes in 2014-15.

But according to a report by Crisil Ratings, the organised dairy industry is likely to witness 12 per cent revenue growth this financial year to reach ₹ 1.6 lakh crore, mainly due to recovery in demand for value-added products (VAPs), steady liquid milk sales and a hike in the retail price. The report, which was released in February this year, is based on an analysis of 57 rated dairies which account for nearly two-thirds of the organised segment revenue of ₹ 1 lakh crore. It states that the revenue from India's organised dairy industry will rebound as compared to a decadal low growth of one per cent last fiscal, riding on strong demand recovery in most VAP, steady liquid milk sales and retail price hikes during the fiscal year. “VAP sales growth is expected to be 17-18 per cent this fiscal on a lower base of last fiscal. This, in turn, will be driven by strong volume growth of 13-14 per cent as hotels, restaurants and cafés (the HORECA segment, accounting for approximately 20 per cent of organised sector sales) have opened up, and festive and wedding celebrations as well as home consumption has increased. The second and third COVID-19 waves have had no material impact on most dairy segments, with food-delivery services and eateries continuing to function despite local restrictions,” said Anuj Sethi, Senior Director, CRISIL Ratings.

The Indian dairy industry can be segregated into liquid milk, UHT milk, flavoured milk, curd, flavoured and plain; frozen yoghurts, probiotic dairy products, lassi, buttermilk, table butter, ghee, paneer, cheese, khoya, cream, skimmed milk powder, dairy whiteners, sweet condensed milk, ice cream, whey, A2 milk, organic milk, milkshake, and dairy sweets. Among these, liquid milk currently holds the majority of the total market share. Our top five milk-producing states are Uttar Pradesh (14.9 per cent, 31.4 MMT), Rajasthan (14.6 per cent, 30.7 MMT), Madhya Pradesh (8.6 per cent, 18.0 MMT), Gujarat (7.6 per cent, 15.9 MMT) and Andhra Pradesh (7.0 per cent, 14.7 MMT).

GST, change and the A2 milk conundrum

Private dairy businesses are now also grappling with the five per cent hike in GST (Goods and Services Tax) on pre-packaged, pre-labeled dairy and agri products. Earlier this month, the GST Council had withdrawn exemptions from taxation on food items, grains, etc. Under the new rules, milk products like pre-packed, pre-labeled curd, lassi and buttermilk now attract a GST rate from the previous nil. Expectedly, dairy companies have had to increase their consumer prices to pass on the impact of additional costs. “I have had to raise prices of my products,” says Thacker. Some analysts say that with the levy of five per cent GST on curd, dairy companies will be able to achieve input credit (packaging material, some raw materials, ad-spend, transportation and freight costs), the ultimate net impact of the levy will be in the range of two-three per cent. But that remains to be seen.

Irani looks after the sales and marketing at Parsi Dairy Farm, the much loved Mumbai company whose headquarters are located on bustling Princess Street. PDF was the OG of private dairies in and around Mumbai when it was established by Nariman Ardeshir in 1916. Today, the family-run concern is in the process of upgrading its business. “It’s been an ongoing process for the business. New businesses opened up for us once modernisation set in. We now supply milk to several hospitality establishments all over India as well as sell our milk products in retail stores across the country,” says the 37-year-old. The new area of growth that PDF wants to adapt to is the online retail space. “What we started out with in 1916 still stands today–milk delivery to homes and the sale of our mithais. The next step for us is e-commerce; we need to capture the new-age customer,” states Irani.

While Irani is trying to build a tech-friendly element into the business, Thacker, who is a second-generation dairy entrepreneur in West Bengal, is very clear that he wants to focus on quality. “The most important aspect of any dairy business is the farmer, the price at which the farmer is being compensated. Is the price actually beneficial for the small farmer? How are the farmers looking after their cows and so on?” Thacker points out that it’s his job to stay straddled between the farmer and consumer, ensuring both are well-serviced in order to ascertain a quality end product. Among the several challenges the industry faces, is the “organic milk and A2 fad”, he says. “Theoretically A2 milk is good for health. But today [several companies] are misusing that which needs to be kept in check. What’s more important is checking adulteration and ensuring the consumer a top quality of milk, no matter what the brand,” he emphasises.

The mass-premium segment is, no doubt, dominated by cooperatives and traditional private players, but the premium end of the market is now occupied by the new-age dairy brands that are here to stay.

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