India Faces Growing Dairy Crunch: Fat Shortage, Not Milk Output, Is The Real Crisis
While India’s milk production has shown impressive growth over the last decade, rising from 165.1 million tonnes (mt) in 2016 to 216.5 mt by 2025, the dairy industry is currently grappling with a paradoxical crisis. Although the nation is producing more milk than ever, a distinct shortage of milk fat has led to soaring prices, forcing cooperatives and private dairies to hike retail costs for staples like ghee and butter.
According to data from the US Department of Agriculture, while production grew at a steady 3% annually, this momentum is expected to taper off to 2.5% in 2026 and 2% in 2027. This slowdown is attributed to tightening feed supplies and reduced animal productivity, exacerbated by the effects of El Niño in critical dairy-producing regions. However, industry insiders suggest that the volume of milk is not the primary concern; rather, it is the composition of the milk and the surging demand for high-fat dairy products that are straining the market.
The Widening Gap in Fat Prices
The discrepancy between milk fat and solids-not-fat (SNF) pricing is stark. Between October 2023 and October 2026, the ex-dairy price of butter surged by 54.3%, climbing from Rs 348 to Rs 537 per kg. In contrast, skimmed milk powder (SMP), which is primarily SNF, saw a modest price increase of only 18% during the same window.
This price volatility has hit consumer pockets hard. The Gujarat Cooperative Milk Marketing Federation (GCMMF), known for its ‘Amul’ brand, recently increased the Maximum Retail Price (MRP) of its ghee and table butter to account for the rising cost of fat procurement. For pure ghee, the cost of processing, packaging, logistics, and taxes pushes the retail price toward the Rs 755-762 per litre range, a significant jump for the average household.
Factors Driving the Fat Inflation
Several factors have converged to create this environment. Firstly, policy changes have stimulated demand; recent GST cuts on products like ghee, butter, and cheese have made these high-fat items more accessible, further tightening supply.
Secondly, regulatory crackdowns have reshaped the supply chain. Following high-profile incidents involving adulterated ghee, authorities have intensified inspections, banning “analogue” paneer and intercepting substandard milk shipments. These measures have effectively pushed the market toward high-quality, genuine milk, causing it to command a premium price.
Additionally, aggressive exports during 2024 and 2025—when global fat prices were high—depleted domestic reserves, leaving little cushion to absorb the current supply constraints.
Structural Shifts in Livestock
The crisis is further compounded by a long-term decline in the buffalo population. In the early 2000s, buffaloes accounted for over 57% of India’s milk output. Today, that share has fallen to approximately 45%. Because buffalo milk is naturally higher in fat than cow milk, this demographic shift in livestock has fundamentally lowered the national average fat content in the milk supply.
Looking ahead, the industry hopes for a stabilization of prices. Post-Diwali demand cycles typically experience a cooldown, and the upcoming “flush season”—when winter temperatures facilitate higher production—may offer some relief to the supply-demand imbalance. While experts believe the impact of El Niño on animal feed won’t result in an immediate collapse of output, the long-term outlook remains cautious, as the reproductive cycles of younger cattle may eventually bear the burden of current feed shortages.
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