Why is ghee costing more? Indian dairies have a big fat problem

India’s milk production has increased from 165.1 million tonnes (mt) to 216.5 mt between 2016 and 2025, translating into a compound average annual growth of about 3%, according to the US Department of Agriculture.

That rate is expected to fall 2.5% (to 222 mt) in 2026 and 2% (to 226.5 mt) in 2027, with the agency attributing the growth slowdown to “tightening feed and fodder supplies and animal productivity” from El Niño-induced drought in key producing states.

The overall production data, however, hides the real problem. India today faces a shortage not of milk as much as fat. Milk has two primary solids components: Fat and SNF or solids-not-fat. The latter mainly consists of lactose (milk sugar), proteins (casein and whey) and minerals (calcium, phosphorus, potassium, sodium, magnesium and various trace elements).

The accompanying tables show average monthly price realisations for Indian dairies from butter and skimmed milk powder (SMP) sales. Butter has 82% fat content, while SMP has 95-97% SNF by weight.

Between October 2023 and October 2026, the average ex-dairy price of butter has risen by 54.3%, from Rs 348 to Rs 537 per kg. The same period has seen SMP prices go up by just 18%, from Rs 250 to Rs 295 per kg.

Dairies are currently selling yellow (cow) butter at Rs 550-555 per kg. The equivalent price for cow ghee, having 99.5% milk fat, comes to Rs 670-677 per kg or Rs 610-616 per litre (1 litre=910 grams). Expenses on processing (heating and melting: Rs 5), packaging (Rs 10), transport and trade margins (15%), and 5% GST (goods and services tax) would take the maximum retail price (MRP) of pure ghee to Rs 755-762 per litre.

Not for nothing that even the Gujarat Cooperative Milk Marketing Federation (GCMMF) – which offers lower distributor and retailer margins – has had to hike the MRPs of its ‘Amul’ cow ghee from Rs 695 to Rs 735 per one-litre pouch and table butter from Rs 310 to Rs 325 per 500-gm pack. The new prices are effective from November 2.

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What explains the soaring milk fat costs?

One reason is consumer demand for high-fat dairy products. “The cut in GST rates since September 22, 2025 – from 18% to 5% on ice-cream; 12% to 5% on ghee, butter and cheese; and 5% to nil on paneer – has further fuelled demand for these products,” R.S. Sodhi, former managing director of GCMMF, told The Indian Express.

The second is the actions of the Food Safety and Standards Authority of India and state departments. It started with the crackdowns on adulterated ghee suppliers, especially after the Tirupati laddu scam came to light in September 2024. Subsequently, there have been bans on sale of analogue paneer (made using vegetable oils instead of full-fat/whole milk) and interceptions of tankers carrying substandard milk.

“All this has led to genuine milk with high total solids content supplied by farmers fetching a premium,” said Ganesan Palaniappan, a Chennai-based dairy commodities trader.

A third explanation has to do with exports of milk fat. During 2024-25 and 2025-26, India exported 56,578.64 tonnes and 37,167.33 tonnes of ghee, butter and anhydrous milk fat, valued at Rs 2,663.05 crore and Rs 2,034.78 crore, respectively. Those record shipments – when global fat prices ruled at $6,500-7,500 per tonne, as against $5,300-5,500 now – have depleted fat stocks with dairies, exacerbating domestic shortages.

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That has, moreover, come at a time when milk production growth itself has slowed down. This is the fourth factor cited by Sodhi, also reflected in dairies struggling to procure enough milk.

Karnataka Milk Federation has been forced to raise the base purchase price for standard cow milk containing 3.5% fat and 8.5% SNF from Rs 35 to Rs 42 per litre. Adding the existing Rs 5 incentive under the state government’s Ksheeradhare scheme, farmers are effectively receiving Rs 47 per litre. The cooperative has simultaneously revised upwards the MRP of its ‘Nandini’ toned milk (3% fat and 8.5% SNF) from Rs 46 to Rs 54 per litre and also that of ghee packed in one-litre sachets from Rs 715 to Rs 850.

In Uttar Pradesh, dairies are paying farmers Rs 62-63 per litre for buffalo milk with 6.5% fat and 9% SNF. “The price inflation in fat is also due to the falling contribution of buffaloes to national milk production. In 2000-01, around 57% of India’s total milk was from buffaloes. That share is hardly 45% today,” Sodhi pointed out.

It remains to be seen whether prices would head further northwards. In the near term, that may not happen because demand for milk products, particularly sweets, would ebb post Diwali. Also, the winter and spring months coincide with the ‘flush’ season, when animals usually calve and produce more milk with a drop in temperatures.

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Even with regard to El Niño, the impact on milk output is probably not going to be immediate. “In low rainfall years, farmers tend to focus more on rearing animals than cultivating crops. Milk brings in much-needed cash, which means it makes sense to use scarce water for growing fodder instead of regular crops on their land,” Palaniappan noted.

While El Niño could hit fodder and feed availability, the effects of that may also not be felt in the short run. Since the cows and buffaloes already giving milk are unlikely to be deprived of fodder, the brunt would be borne by pregnant animals, young heifers and calves. As their reproduction-cum-lactation cycles get disrupted, it might show up in lower production only a year or so from now.

        Weighted Average Ex-Dairy Price of Butter (Rs/kg)

	2023-24	2024-25	2025-26	2026-27
Apr	405	341	430	486
May	380	360	456	515
Jun	364	350	418	505
Jul	346	350	438	512
Aug	342	351	445	515
Sep	345	359	494	528
Oct	348	373	531	537
Nov	348	389	519
Dec	321	381	489
Jan	335	411	471
Feb	322	416	480
Mar	324	414	512

          Weighted Average Ex-Dairy Price of SMP (Rs/kg)

	2023-24	2024-25	2025-26	2026-27
Apr	298	235	266	267
May	265	241	267	275
Jun	277	248	252	278
Jul	264	241	248	277
Aug	250	238	256	279
Sep	260	227	262	291
Oct	250	222	256	295
Nov	261	226	256
Dec	243	220	253
Jan	244	234	263
Feb	225	233	269
Mar	225	247	269