The country's dairy market will continue to grow at about 13-15% annually till 2019-20, on increasing consumption of value added products and the value chain becoming more and more organised, according to a report by Rabobank.
"India dairy is emerging as a strong consumption story, with the market growing at a pace. We expect this trend will gain momentum over the next 4-5 years driven by increasing consumption of value-added products and the formalisation of the value chain," the report said.
According to the report, Rabobank expects this segment to grow at a CAGR of 13 to 15% until 2019-20.
The market share of value-added products is likely to increase to 31% from the current 21% during this time period, it pointed out.
The main factors driving growth are increased consumer interest in higher protein diets, greater affordability due to growing disposable incomes and rising awareness and availability of dairy through channels such as organised retail and food service segments, it said.
The country's total organised diary sector is about $10 billion in 2012-13, comprising cooperatives and private players who control the supply chain linkages.
"For years, the Indian dairy market has remained an enigma for global dairy players," saidd Rabobank analyst Shiva Mudgil, adding that currently, however, the market is in a transition phase.
High market growth and favourable market conditions may make now the right time for global players to engage with the Indian dairy sector, he pointed out.
India's large consumption market, its existing milk supplies and established consumer preference for dairy products, has encouraged global dairy companies to engage with India in the past, the report said.
However, the challenging environment, with its informal fragmented supply chain, raw milk quality concerns, small base for value-added dairy products and ever-changing trade regulations, proved a challenge and a strong disincentive.
Nonetheless, India's formal dairy market has shown strong growth in recent years, which is likely to accelerate due to product innovation, enabling government policies and industry consolidation.
Rabobank anticipates this acceleration will help improve industry margins by attaining greater scale, higher capacity utilisation and an increasing contribution from value-added products in total dairy revenues.
"While the dairy market in India is not for every company, considering the challenges, many global companies should now be revisiting their Indian dairy strategy," he said, adding that for some, it may prove to be the right time to join thegame, even on a small scale, through starting a strategic dialogue on Indian dairy.