India’s milk production is expected to grow by 2 per cent in 2027, slower than the estimated 2.5 per cent growth in 2026, as El Niño-related drought conditions are likely to affect feed and fodder availability and reduce animal productivity, according to a report by the United States Department of Agriculture (USDA).
The USDA’s Foreign Agricultural Service (FAS), in its report Dairy and Products Annual – India, published by its New Delhi office, has forecast India’s milk production at 226.5 million metric tonnes (MMT) in the January-December 2027 marketing year, compared with the revised estimate of 222 MMT in 2026.
India is the world’s largest milk producer and consumer. According to the report, the impact of El Niño-related drought on dairy production will be partly offset by an increase in the number of higher-yielding crossbred cows, along with government-supported breed improvement, disease control and dairy husbandry programmes.
The number of cows in milk is projected to increase by 1.3 per cent to 63.3 million in 2027. Farmers are increasingly shifting towards higher-yielding crossbred cows and indigenous buffaloes, replacing low-yielding non-descript cattle and buffaloes.
Small farmers dominate India’s dairy sector
The USDA report highlights the predominantly smallholder-driven structure of India's dairy sector. Nearly 95 per cent of milk producers own between one and five dairy animals, while the average small dairy farmer typically maintains two to three milch animals.
However, the number of medium and larger dairy operations is gradually increasing, supported by various government programmes. Some traditional backyard dairy farmers are expanding their herds to 10-20 animals by adopting crossbred cattle, improved feeding practices and better animal husbandry.
Around 80 million rural households are engaged in dairy farming as their main source of income. Milk production is concentrated in six major states—Uttar Pradesh, Rajasthan, Madhya Pradesh, Gujarat, Maharashtra and Punjab—which together account for more than 60 per cent of the country's total production.
The report notes that inadequate feed and fodder availability remains a major constraint on dairy productivity. Estimates by the ICAR-Indian Grassland and Fodder Research Institute indicate supply gaps of 11-32 per cent in green fodder, 23 per cent in dry fodder and 28-40 per cent in concentrate feed.
Milk consumption projected to rise
Despite the expected slowdown in production growth, domestic demand for milk and dairy products is projected to remain strong in 2027. The USDA forecasts fluid milk consumption at 95 MMT, an increase of slightly more than 2 per cent over 2026. Factory use of milk is projected to reach approximately 131.5 MMT, also registering growth of around 2 per cent.
Rising disposable incomes, urbanisation, changing consumer lifestyles and the expansion of organised retail are expected to drive demand. Growing health consciousness and the increasing availability of processed and value-added dairy products are also supporting consumption. Milk and dairy products remain among the major sources of protein for Indian consumers, particularly the vegetarian population. Besides fluid milk, demand is increasing for traditional products such as ghee, butter, curd, paneer and milk-based sweets, as well as processed products.
The report also points to the growing role of organised retail outlets, e-commerce and quick-commerce platforms in expanding the market for value-added dairy products.
Butter and SMP production to increase
The USDA has projected India's butter production at 7.6 MMT in 2027, an increase of 2.2 per cent over 2026. Domestic consumption is also forecast at approximately 7.6 MMT, reflecting strong demand and expanding milk processing capacities in both the cooperative and private sectors. Skimmed milk powder (SMP) production is projected to increase by 2.5 per cent to 810,000 tonnes in 2027, compared with 790,000 tonnes estimated for 2026.
SMP consumption is forecast at 805,000 tonnes, up 3.5 per cent from the previous year. Demand for reconstituted milk during the lean milk production season (April-October) is expected to remain a major driver of production and consumption. SMP is also used in bakery products, chocolates, confectionery, infant food and tea and coffee creamers.
Dairy prices remain elevated
Higher feed and fodder costs have continued to influence domestic milk prices. The USDA estimates that average milk procurement prices during January-August 2026 were around 4 per cent higher than the average for 2025. Prices of processed dairy products have also increased. Average SMP prices during the first eight months of 2026 were approximately 8 per cent higher than in 2025, while butter prices rose by around 10 per cent. According to the report, butter prices reached Rs. 515 per kg in August 2026, compared with Rs. 530 per kg in October 2025. SMP prices reached Rs. 280 per kg in August 2026. The report expects El Niño-related drought conditions and tighter milk supplies to put further pressure on dairy prices.
Dairy exports likely to decline
Despite being the world's largest milk producer, India exports only a small proportion of its dairy output. The USDA expects tighter domestic supplies and higher prices to reduce exports of major dairy products in 2027. Fluid milk exports are forecast at 25,000 tonnes, compared with an estimated 30,000 tonnes in 2026. Butter exports are projected to decline to 40,000 tonnes from 45,000 tonnes in 2026.
The sharpest decline is expected in skimmed milk powder exports, which are forecast at just 7,000 tonnes in 2027, less than half the estimated 15,000 tonnes in 2026. India's dairy imports are expected to remain negligible, supported by expanding domestic production and high import duties.
High tariffs restrict US dairy imports
The report also highlights India's restrictive dairy import regime, particularly for US dairy products. Import duties on most dairy products range between 20 and 60 per cent, alongside several non-tariff barriers and sanitary certification requirements.
India allows imports of up to 10,000 tonnes of milk powder under a tariff-rate quota (TRQ), with a 15 per cent import duty, compared with 60 per cent outside the quota. A separate quota of 15,000 tonnes applies to butter and milk fats, with zero import duty within the quota and a 40 per cent duty outside it.
However, quota allocations are effectively restricted to government-linked organisations, including the National Dairy Development Board (NDDB), National Cooperative Dairy Federation (NCDF) and National Agricultural Cooperative Marketing Federation of India (NAFED). This limits the utilisation of these import quotas.
The USDA report concludes that India's dairy sector will continue to benefit from rising domestic demand, expanding processing capacity and government-supported productivity improvement. However, climate-related risks, particularly the expected El Niño-induced drought in 2027, could constrain production growth by increasing pressure on feed and fodder availability.