Milk procurement price surge of ₹3–4/litre set to squeeze dairy margins in H1CY26
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India’s dairy companies are staring at margin pressure in the first half of CY26 as a sharp rise in milk procurement prices collides with limited ability to pass on costs to consumers, according to domestic brokerage firm ICICI Securities.
Milk procurement prices, already on an upward trajectory through the first nine months of FY26, have seen a steep jump of ₹3–4 per litre in the March quarter. This acceleration is expected to weigh on profitability, particularly in H1CY26, when pricing flexibility is likely to remain constrained.
“The increase has been sharper than anticipated in Q4FY26, and the impact on margins could be significant unless companies take calibrated price hikes,” said Aniruddha Joshi, analyst - FMCG at ICICI Securities.
Several factors are driving the surge. A weaker-than-expected flush season in FY26 has tightened milk supply, while higher exports of butter and declining domestic inventories of both butter and skimmed milk powder (SMP) have reduced the buffer typically available to absorb cost spikes. “Lower inventory levels of these commodities may not cushion the steep increase in milk procurement prices,” he noted.
Adding to the pressure are expectations of a strong summer in CY26, which typically pushes up demand for milk and milk-based products, further straining supply.
However, dairy companies may find it difficult to raise retail prices in the near term. State elections scheduled for April–May 2026 are likely to limit pricing actions by both cooperatives and private players. “The timing of elections may restrict the ability to increase selling prices, even as input costs rise,” Joshi said.
External factors are also compounding the challenge. The ongoing crisis in the Middle East is expected to push up packaging material and freight costs, adding another layer of cost pressure across the value chain.
The latest surge — with crude up 50–70% year-on-year and well above the $75–80 per barrel base seen a few months ago — has inflated key inputs. Packaging materials such as PET and HDPE, and freight costs have seen 5–10% inflation, according to Sandeep Abhange, research analyst at LKP Securities. These inputs account for 8–12% of the cost base for most FMCG firms, making the impact hard to absorb without adjustments.
Joshi estimates that margins could remain under stress through CY26 unless companies implement price hikes of ₹4–5 per litre. Without such increases, profitability is likely to take a hit despite stable demand.
Even as cost pressures build, companies are leaning on supply chain adjustments and inventory buffers to maintain stability. “Across the dairy value chain, we are seeing some shifts in cost structures, particularly around fuel-linked expenses that impact milk collection, cold chain operations, and distribution,” said Ranjith Mukundan, CEO and co-founder of Stellapps Technologies, a B2B dairy tech company.
From an operational standpoint, dairy companies are focusing on adapting quickly to these fluctuations. “The focus today is on adapting to these fluctuations while ensuring continuity and efficiency,” he said, adding that firms are strengthening planning mechanisms and leveraging technology to improve visibility across procurement and distribution.
Summer demand offers partial relief
There is, however, a silver lining. Demand for seasonal products such as ice cream and buttermilk is expected to remain strong, offering some support to volumes. “We expect healthy growth in summer-led categories, which should provide some offset to margin pressures,” Joshi said.
Call Me Chunky, a new Indian ice cream brand launched in 2025, saw a 11% spike in overall demand “with standout growth of over 21% for Choco Brownie Spells, Fudgy Rocky Road and Cookie Caramel Charms, particularly on quick commerce platforms like Instamart , Zepto, and Blinkit ,” according to Ashish Tendulkar, the company's chief operating officer.
At the same time, he said, their offline retail presence (spread across Nature’s Basket, Society Stores, Food Square, Haiko, Star Bazaar, Fresh Pik, Spar) also contributed to nearly 11% of overall sales, “indicating strong traction across both impulse and planned purchases.”
Even so, the near-term outlook suggests a tight balancing act for dairy companies as they navigate rising input costs, policy sensitivities, and resilient consumer demand.