Dairy stocks rally as heatwaves drive rare shortage in world’s biggest milk producer

By Ashutosh Joshi

Dairy stocks are rallying in India as the world’s largest milk-producing nation suffers a rare shortage that has driven prices higher ahead of peak summer demand.

Shares of Parag Milk Foods Ltd. and Heritage Foods Ltd. have risen more than 14 per cent each this month as the nation braces for heat waves that threaten dairy production. The government last week said it is considering imports to boost supply.

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Food prices have surged on hampered agriculture production as India is expected to see a second-straight year of unusually hot April-June weather. Meanwhile demand has rebounded post-Covid and should spike higher as consumers seek relief in ice cream and other dairy goods.

Credit: Bloomberg

Milk prices in India have risen by more than 10 per cent in the last year, while dairy procurement has shrunk by about 7 per cent, according to Himanshu Nayyar, an analyst at Mumbai-based Systematix Shares & Stocks India Ltd.

Listed firms have stronger infrastructures in place to handle milk processing and also have the ability to pay cattle farmers more promptly than smaller dairies, Nayyar said. This may lead to market share gains for the larger companies, he added.

Producers including farmer-run cooperatives have asked the government to import conserved dairy commodities such as milk fat and powder to help meet demand. While saying it is monitoring the situation, the dairy ministry noted that “the process of import takes time.”

India’s tight milk supply-and-demand balance stands in contrast to the situation in China. New Zealand dairy giant Fonterra Cooperative Group Ltd. recently cut its milk price forecast, citing slack China demand and increasing production in the northern hemisphere.