India’s Inflation and the Economics of Milk
10 Sept 2025
1 mins read
Introduction: Why Milk Matters in India's Economy
From the morning cup of hot milk that schoolkids have before leaving home, to the preparation of a vast array of sweets and uses in Hindu rituals, milk is one product that is ubiquitous across every stratum of Indian society. From an economic standpoint, milk is the second-most consumed food product in the nation, with poor families aspiring to use it, and wealthier families seeing it as a status symbol.
But not all is well on the milk front. Once a land of surplus milk, a demand-supply mismatch for milk has put India in a precarious situation. This has resulted in an inflationary spiral that has been observed in milk prices with a 12% yoy average retail price increase in the last one year. Milk is not just a basic necessity for nutrition, but also can be food inflationary.
Table of Contents
Recent Trends in Milk Inflation in India
In 2025, food inflation in India has eased overall, with the Consumer Food Price Index showing deflation in June and July. Yet, milk prices remain under pressure, with Heritage Foods raising prices by 2%–4% and states like Odisha hiking retail rates by ₹2 per litre. Amul has also paid more to farmers for milk indicating that costs remain high even as other food items get cheaper.
Economics Behind Milk Production
Milk is an essential commodity, which in turn makes it an extremely inelastic product since a modest rise in price does not impair demand. The increase in prices of cereals and rice brans has had an adverse impact on the dairy sector, as these products are used as animal feed. Farmers are getting discouraged by the high prices, and are cutting down on adequate feed for their cattle. That has hit the milk supply, which is directly reflecting in the rise of milk prices.
Demand-Supply Dynamics of Milk in India
While India accounts for over 25% of the global milk supply, its supply chain is still quite unique. A large part of the output comes daily from tens of millions of small cattle-rearing farmers. When the pandemic hit India, the demand for milk and other related products nosedived due to restaurants and sweet shops being shut. During lockdowns, farmers were unable to feed their livestock properly, leading to a long-term impact on milk output. These disruptions have contributed to the current mismatch between demand and supply.
How Inflation Impacts the Dairy Sector
The rising cost of cattle feed and the resulting cutback in production has affected both farmers and dairy companies. Farmers face lower yields due to underfed cattle, while dairy companies face higher procurement costs, shrinking their margins. For consumers, milk inflation spills over into other dairy products like curd, paneer, ghee and sweets, pushing overall food inflation higher.
Global Factors Affecting Milk Prices in India
The El Nino effect saw the country receiving discontinuous amounts of rain which augmented the cost of cereals. Even before this, the pandemic had disrupted both demand and supply. With farmers unable to sustain their livestock during lockdowns, milk production took a long-term hit. These factors, combined with global weather patterns, have continued to put pressure on milk availability and pricing in India.
The Road Ahead for the Milk Story
In 2025, milk prices are likely to stay firm. Heatwaves have reduced supply in many regions, leading to price hikes, while summer demand for curd, lassi and ice cream is keeping pressure on the market. Consumption is also expected to rise further this year, with festive demand adding to the load. On the positive side, recent GST cuts on dairy products may offer some relief to consumers and improve earnings for farmers, but overall prices are expected to remain on the higher side.
FAQs on India’s Inflation and the Economics of Milk
Why is milk becoming expensive in India?
Milk is becoming more expensive largely because of rising cattle feed prices, increased input prices, and reduced supply during heatwaves. Summer demand and festivals also put pressure on prices.
How is inflation affecting dairy farmers?
When procurement prices increase at a slower rate than feed and maintenance expenses, farmers cannot keep their cattle. Others scale down feed or cull herds, which impacts long-run milk output and revenues.
What is the government's role in milk pricing?
The government does not directly regulate milk prices, but it impacts them indirectly through support programs, subsidies, GST policies, and by providing equitable procurement prices to farmers. State cooperatives such as Amul also significantly set market reference points.
Is milk included in India's inflation index (CPI)?
Yes. Milk is covered by India's Consumer Price Index (CPI) in the food and beverages group. Movement in milk prices has a direct impact on overall retail inflation rates.
Where is milk pricing headed in India?
Milk prices will remain steady in 2025 as a result of supply deficits and increasing demand in summers and festivals. But policy measures such as GST reductions and improved supply chain management can bring relief in the medium term.
