India's dairy inflation debate starts at the wrong point, argues Ravin Saluja, Director of Sterling Agro Industries Ltd (Nova Dairy), in a commentary published by The Hindu BusinessLine on August 2, 2026. Rather than demand, the determining factor behind sustained milk price increases is the cost of producing one litre of milk — a cost driven by structural challenges, not seasonal ones.
Input Costs Trump Demand in Milk Price Formation
Saluja states that dairy inflation is influenced more by the cost of producing one litre of milk than by the demand for it. This is getting increasingly relevant, he says, because of the current structural challenges facing dairy farmers rather than their seasonal ones. The dairy industry depends on healthy animals, quality feed, reliable water and consistent care — all of which have become more costly in recent years.
Feed remains the biggest challenge. Although a dairy farmer can cope with variations in the price of milk, he or she cannot afford to compromise on the quality of feeds without jeopardising productivity, according to Saluja. Veterinary care, labour and energy are not optional expenses; they are essential investments. Higher costs of transportation also feed into the final price. That is why inflation in dairy cannot be viewed only from the retail shelf — it begins at the farm. | Input | Role in dairy production | |-------|--------------------------| | Feed | Biggest challenge; quality cannot be compromised | | Fodder | Cost increases become part of production cost | | Veterinary care | Essential investment | | Labour | Essential investment | | Energy | Essential investment | | Transportation | Higher costs trickle down to final price |
Demand Is Strong but Not the Deciding Factor
India's demand for dairy has remained strong for decades, Saluja notes. Milk is among the few products that are consumed regardless of location, age or social class. There can be fluctuations in consumption during festive occasions such as weddings, but these are temporary trends. Input costs, by contrast, influence the sector every single day. If production costs rise because of higher feed or fodder prices or higher transportation costs, that will ultimately trickle down to the final price, he writes. Looking only at demand risks missing the real reason behind sustained inflation.
Productivity Is the Strongest Protection Against Inflation
The long-term answer, according to Saluja, is not to expect lower prices but to lower the cost of producing milk. That can only happen through higher productivity. India has built the world's largest dairy sector by connecting millions of farmers to the market. In the next stage, emphasis must be placed on increasing milk production by these farmers using the same amount of resources. Animal feeding, animal breeding, and veterinary and farm management practices can all contribute to making a difference.
Saluja lists the benefits of productivity across the chain:
- Farmers earn more from each animal.
- Processors receive a more stable supply.
- Consumers face fewer price shocks.
- Inflation becomes easier to manage because efficiency improves across the value chain.
Where the Next Dairy Inflation Story Will Be Written
The resilience of the Indian dairy industry cannot be overlooked, Saluja writes. The industry continues to thrive amidst climatic changes and increasing costs. The future of the dairy industry will hinge on its ability to manage production costs rather than thinking about retail prices first. India's population is increasing, awareness levels are increasing, and dairy products are essential in the diets of Indians. The real challenge is whether the industry can supply the required amounts of milk in an efficient, sustainable and affordable manner. Saluja summarizes the mechanism simply:
When input costs are stable, prices remain stable. When productivity improves, inflation becomes easier to manage.
Demand may influence the headlines, but it is input costs that will ultimately decide the direction of India's dairy economy, he concludes. For commodity traders and procurement teams monitoring Indian dairy, Saluja's argument redirects attention to farm-level production economics — feed and fodder prices, energy costs, labour availability and productivity trends — as the leading indicators of where milk prices are headed, rather than festive-season consumption spikes.
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