India accumulates surplus milk powder amid dairy fat shortage

India is facing a growing imbalance in its dairy market: despite steadily increasing milk production, processors are struggling with a shortage of dairy fat while accumulating surplus skimmed milk powder. Over the past decade, the country’s milk production has grown by an average of 3% annually. However, changes in the composition of its raw milk supply have resulted in insufficient fat for the production of butter and ghee, a traditional Indian clarified butter. This is according to an analysis published by The Indian Express.

The main reason for the imbalance is the gradual decline in the share of buffalo milk, which has a significantly higher fat content than cow milk. Three decades ago, buffalo milk accounted for approximately 60% of total production, but its share has now fallen to around 45%. Standard buffalo milk contains 6.5% fat, compared with just 3.5% in cow milk. As a result, even as overall milk production increases, the availability of dairy fat is not growing fast enough to meet demand.

To obtain the required volumes of fat, dairy processors are forced to use more cow milk, which simultaneously increases the production of non-fat milk solids. This leads to the accumulation of skimmed milk powder stocks, while domestic demand for the product remains limited. The situation creates additional storage costs and raises the risk of further growth in carryover stocks, even as dairy fat supplies remain insufficient.

Additional pressure on the market comes from rising demand for genuine dairy fats following stricter government enforcement against the adulteration of ghee with vegetable oils, palm fat and other substitutes. Meanwhile, the reduction in Goods and Services Tax (GST) on butter, ghee and cheese from 12% to 5% has supported increased consumption of dairy products. Against this background, producers have raised prices. Karnataka Milk Federation increased the price of a one-litre Nandini ghee pack from INR 715 to INR 850, while Amul raised its ghee price from INR 640 to INR 680.

To address the imbalance, experts recommend focusing not only on increasing total milk production but also on improving its fat content. Proposed measures include expanding buffalo breeding programmes, improving dairy cattle genetics and introducing farmgate pricing systems that reward farmers for producing milk with higher fat content. Without changes to the structure of milk production, India risks continuing to accumulate surplus milk powder while facing shortages of raw materials for high-fat dairy products.

Tags: India, butter, dairy products