What next for ‘The Taste of India’?

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Team Unifi
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India’s dairy sector celebrated its 50th birthday in January this year. Born in 1970, Operation Flood which was conceptualized and launched by the National Dairy Development Board (NDDB), has played a key role in shaping the dairy sector to what it is today. At the core of it, the project created a national milk grid, linking milk producers to consumers across the country. The project enabled the creation of village-based cooperatives which enrolled dairy farmers as members who would have access to the latest dairy farming techniques. This gave farmers unified access to markets, and remunerative pricing, leading to economic upliftment of vast sections of the rural population. 

Fast-forward to 2020, India is the world’s largest producer and consumer of milk. India produced 188mn tonnes of milk in FY 2019, twice as much as the United States and 5x of China. 



Borrowing a phrase from India’s startup ecosystem, achieving “product-market fit” was easy for the dairy sector.  The industry was supported by a robust supply chain, complete with home delivery of milk in the morning. Without using jargons like hyper-local or subscription-based business models, the sector innovated on logistics and pioneered a monthly payment collection system. It was almost flawless. In reality, brands like Aavin and Amul were the first DTC (direct-to-consumer) brands in India with a subscription-based business model. The entire dairy sector in India relied on one fundamental consumer phenomenon: Dairy-based nutrients are an “essential” part of the consumers’ dietary requirements. 

Over the last five decades, the dairy industry has mirrored the consumption patterns of billions of Indians. Packed with proteins and nutrients dairy products are integral to the Indian diet. Curd rice, anyone? According to research by CARE Ratings, 15% of food expenditure across the country is on dairy products.

The times are changing

Over the last 15 years, Indian consumers have increased the consumption of value-added dairy products like cheese, yogurt, whey, butter, paneer, ice-cream, myriad varieties of desserts, etc. The demand and supply characteristics at play here are two-fold; (1) Rising per capita income led to a higher demand for proteins (milk based and otherwise), and (2) As the margin profile of value-added dairy is significantly higher than plain milk, manufacturers are incentivized to expand the markets for the same. For dairy companies, achieving product-market fit is no longer straightforward. As Indian taste buds evolve from set-at-home curd to Greek yoghurt and gourmet cheese, organized dairy companies are now focused on product innovation, marketing, and brand building to give the new age India the best of what dairy can offer. 

A structural shift from unorganized to organized 

According to research by CARE Ratings, in 2017, organized players contributed only 14% of the total milk production. This number now stands at 20%. In the coming years, the organized dairy sector is expected to grow anywhere between 10% and 15% p.a., driven by an organic increase in demand for value-added products. Urbanization is another key enabler of this trend, as urban India has squeezed out the unorganized sector completely, leading to consolidation of demand. Currently, value-added products contribute 35-40% of India’s total dairy market, while commodity products like liquid milk contribute to 65% of the market. Going forward, we see this mix change favorably towards the value-added segment. 

From nutrition to taste 

The India palate had changed a great deal over the last few decades. One needs to look no further than the refrigerator to understand the shift in consumer preferences of dairy products. 


From mozzarella to flavored milk to cheese slices and paneer, leave alone ice creams, lassis and yogurts, there’s a wide range of product innovation unfolding. The value-added dairy products market is under-penetrated, and several private companies are adding capacities to manufacture products like yoghurt, cheese, curd, flavored milk, etc., in addition to lining up milk procurement capacities in newer geographies. The best way to understand the margins of modern dairy products is to let the numbers do the talking. 


The next 50 years

In the developed markets dairy is a very lucrative industry and counts some of the world’s most valuable companies in Nestle, Kraft, and Danone. In India, except for the iconic co-operative Amul, nobody else has been able to formalize the market at scale. This is now changing at a rapid pace with private players pushing the boundaries and exploring newer products and business models. And this is playing out by the day. While India is the largest producer of milk, and India’s per capita dairy consumption has increased three-fold in the last forty-five years, it is significantly lower than the global average. For three of India’s largest publicly traded dairy companies, the value-added segment revenue grew at a CAGR of 12% between FY2017-2020 with the absolute revenues from this segment rising by almost Rs.1,300cr in the same period and the sector is set for a robust growth curve head led by health & nutrition, thanks to the rising incomes. Given the trend of rising consumerism, these numbers indicate that we have just yet scratched the surface. The time to milk India’s vast dairy opportunity is now. Let’s sip to that. 


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