Agriculture

India’s Milk Fat Shortage Drives Ghee Prices Higher

By Harish Damodaran

India’s milk production rose from 165.1 million tonnes in 2016 to 216.5 million tonnes in 2025, a compound annual growth rate of about 3 %, according to the U.S. Department of Agriculture. The agency projects a slowdown to 222 million tonnes in 2026 and 226.5 million tonnes in 2027, citing tighter feed and fodder supplies and reduced animal productivity caused by an El Niño‑induced drought in key producing states.

While overall milk output is increasing, the country faces a shortage of milk fat. Milk contains two main solid components: fat and solids‑not‑fat (SNF), which includes lactose, proteins and minerals. Between October 2023 and October 2026, the average ex‑dairy price of butter, which contains 82 % fat, rose 54.3 % from Rs 348 to Rs 537 per kilogram. In the same period, skimmed milk powder (SMP), which is 95‑97 % SNF, increased only 18 % from Rs 250 to Rs 295 per kilogram.

Dairies currently sell yellow cow butter at Rs 550‑555 per kilogram. Cow ghee, with 99.5 % milk fat, sells for Rs 670‑677 per kilogram or Rs 610‑616 per litre (1 l = 910 g). Processing, packaging, transport, trade margins and a 5 % GST add to the maximum retail price (MRP) of pure ghee, which reaches Rs 755‑762 per litre.

Even the Gujarat Cooperative Milk Marketing Federation (GCMMF), which offers lower distributor and retailer margins, has raised the MRP of its ‘Amul’ cow ghee from Rs 695 to Rs 735 per litre and its table butter from Rs 310 to Rs 325 per 500‑g pack. The new prices take effect on 2 November.

One driver of the price rise is consumer demand for high‑fat dairy products. R.S. Sodhi, former managing director of GCMMF, said the cut in GST rates in September 2025 – from 18 % to 5 % on ice‑cream, from 12 % to 5 % on ghee, butter and cheese, and from 5 % to nil on paneer – has further stimulated demand.

A second factor is regulatory action. The Food Safety and Standards Authority of India and state departments cracked down on adulterated ghee suppliers after the Tirupati laddu scam in September 2024. Bans on analogue paneer and interceptions of tankers carrying substandard milk have led farmers to supply genuine milk with higher total solids, fetching a premium.

A third explanation is the export of milk fat. India exported 56,578.64 tonnes of ghee, butter and anhydrous milk fat in 2024‑25 and 37,167.33 tonnes in 2025‑26, valued at Rs 2,663.05 crore and Rs 2,034.78 crore respectively. Those shipments, when global fat prices were $6,500‑7,500 per tonne, depleted domestic fat stocks and exacerbated shortages.

The fourth factor is the slowdown in milk production growth, which has made it harder for dairies to procure enough milk. Karnataka Milk Federation raised the base purchase price for standard cow milk (3.5 % fat, 8.5 % SNF) from Rs 35 to Rs 42 per litre. With a Rs 5 incentive under the state government’s Ksheeradhare scheme, farmers receive Rs 47 per litre. The cooperative also increased the MRP of its ‘Nandini’ toned milk (3 % fat, 8.5 % SNF) from Rs 46 to Rs 54 per litre and ghee in one‑litre sachets from Rs 715 to Rs 850.

In Uttar Pradesh, dairies pay farmers Rs 62‑63 per litre for buffalo milk (6.5 % fat, 9 % SNF). Sodhi noted that the falling contribution of buffaloes to national milk production – from about 57 % in 2000‑01 to roughly 45 % today – also contributes to higher fat prices.

In the near term, prices may not rise further because demand for milk products, especially sweets, is expected to fall after Diwali, and the winter and spring months coincide with the flush season when animals calve and produce more milk. The impact of El Niño on fodder and feed availability may also be delayed, affecting pregnant animals, young heifers and calves rather than current milk‑producing animals.

Source: Industry data on weighted average ex‑dairy prices of butter and skimmed milk powder.