Indian dairy is set to double while ice cream goes through cold snap

By RJ Whitehead

- Last updated on GMT

Indian dairy is set to double while ice cream goes through cold snap

Related tags: Ice cream, Milk, India

The Indian dairy industry - already the world's biggest for milk - is predicted to double in size by 2020, if new figures are to be believed.

Currently, the organised and unorganised sides of the industry at together worth US$70bn, but this figure should rise to $140bn, according to a report by Investor Relations Society (IRS) this week. This growth will come on the back of growing demand and rising disposable income.

"On the back of a rise in disposable income and strong demand for dairy products, the Indian dairy industry is all set to experience high growth rates in the next 5-6 years​." the report said.

Value-added all the way

While the dairy industry is growing at a compound annual rate of 15-17%, value-added products alone are growing way beyond 24%, it said.

Milk accounts for India’s biggest segment of agricultural production, contributing 22% to the country’s agricultural GDP. Indeed, India overtook the US 15 years ago to become the world's leading milk producer, accounting for over 15% of the global output, the IRS noted.

Investors have been cottoning on to its growth potential, as dairy re-emerges from what has been a relatively quiet period.

Other indications that the organised dairy industry will remain on its growth path include improving financial performance by domestic companies, the entry of Indian conglomerates into the segment through diversification and a surge in private equity deals.

But the real spike will come from value-added products, said IRS chief executive, Kailash Nichani: "The operating margins in value-added products are almost twice that of the liquid milk business, thanks to changing consumption patterns due to rapid urbanisation."

The milk production alone is expected to cross 200m tonnes by 2016 from the current level of 125m tonnes.

The government, too, appears to have realised the industry’s potential and has come up with a range of proactive measures to guide investors interested in setting up food processing units in different parts of India.

The dairy sector has been liberalised in a phased manner since 1991. Many private players entered the market to set up processing facilities in areas with surplus milk.

Ice cream slowing

However, one dairy segment that has been losing ground is ice cream, which has been facing competition from non-dairy products, with Hindustan Unilever the main gainer.

In the five years up to 2012, dairy major Amul’s share of the market for frozen treats fell to 31% from 35% while Unilever’s rose to 21% from 17%, according to researcher Euromonitor.

This has prompted the co-operative giant to launch a series of ads across India to encourage consumers back to dairy ice cream and raise awareness that they are buying products that lack cream or any other dairy fat.

Let the consumer decide and make an informed choice that ’Yes, I’m buying frozen dessert which has got vegetable oil’​,” said R.S. Sodhi, managing director of Gujarat Co-operative, which has 3.2 million dairy farmers as members.

Ice cream without milk is like a wedding without dancing, or cricket without world-beating batsman Sachin Tendulkar​,” says Gujarat Co-operative Milk Marketing Federation in radio ads for its Amul brand.

Sales of ice cream more than doubled between 2007 and 2012 and will do so again in the five years to 2017, reaching US$1.1 billion, Euromonitor predicts. Given that Indians eat an average of 200ml of ice cream each year, compared to Americans’ 14 litres and 2.2 litres in China, there is real scope for growth.

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