Know three Major recent events and trends
Demand pull induced by economic growth & breed improvement

Events impacting dairy consumption:

  • Indian economy is returning to GDP growth of >7% after suffering a couple of years of around 5% growth.
  • As more women join the workforce, making yogurt at home is giving way to the convenience of buying packed yogurt
  • Changes in lifestyle influenced by the West are leading to increases in consumption of western foods like cheese, pizza etc.

Main events affecting milk and dairy commodities production:

  • GOI’s National Dairy Plan and other initiatives are helping increase herd size as well as improve yields.
  • GOI’s latest initiative of improving cow (and to some degree buffalo) genetics using indigenous elite breeds has the potential of changing the profile of Indian bovine animals.
  • Good monsoon 2015 in large parts of the country will boost the economy as well as improve the conditions for rearing of animals.

Drivers / brakes to trade:

  • Low prices of SMP have made exports unviable and have disturbed the economy of dairy companies who have reduced procurement prices
  • Lifting of dairy quotas in Europe may increase global availability of SMP thus impacting an opportunistic seller of SMP like India.
  • Russia has opened her doors to Indian milk products. Sanctions imposed by Europe and the USA on Russia may deliver an opportunity to Indian dairy exporters.
  • Pakistan has lowered duty on Indian dairy products by 5% to 20%.

Dairies and dairy commodity users:

  • ITC, a giant with presence in cigarettes, foods, hotels etc. has announced investment of Rs. 9 billion (USD 145 mio) in dairy sector in 2015 with first plant in Munger (Bihar).
  • Many private dairy companies are in expansion mode and are looking to raise funds either from share market by public offering or from Private Equity Funds.

Monsoon 2015 allays fears of drought

1

Good rains bring cheer :

  1. Indian Meteorological Department had given out a gloomy forecast for 2015 monsoon. Some private forecasters disagreed.
  2. As on end-July, it seems that the official forecast was off the mark and the country may well have a good monsoon
  3. As of end-July, only the western states –Maharashtra, Gujarat and parts of Karnataka and Kerala –and Eastern Uttar Pradesh, Bihar and some north eastern states had received deficient rains.

A good monsoon has made everyone in India optimistic about a good year ahead.

Forecast of the 2015 Monsoon –Thankfully Wrong

2

Macro-economic indicators Back on the path of >7% growth

Source: Gira compilations, estimates and forecasts based on IMF and EIU

The USD/INR rate which was Rs. 66 at end August 2013 improved to Rs. 59 in May 2014 but has fallen back to Rs. 63.7 in July 2015.

Foreign investment flows have stabilized the rupee and have also exerted downward pressure on interest rates.

Overview of the Indian Economy

  • GDP growth in India is back on the upswing. Growth is back to >7% from 5% level that had fallen to three years ago.
  • Inflation has declined by over 6 percentage points since late 2013, and the current account deficit has shriveled from a peakof6.7% of GDP (in Q3, 2012-13) to an estimated 1.0% in 2015-16.
  • The standard of living (in PPP) continues to grow, albeit from a very low base. It has more than doubled since 2004 and, assuming it continues to grow, is rapidly approaching levels at which consumer demand for FMCG “explodes”.
  • Agriculture (historically an under-performer) continues to lag behind. During the second half of 2014-15, GDP from agriculture suffered a negative growth of about 1.3%

While growth figures have been impressive in the past, penetration levels of most consumer goods are still low:

  • There are 12 cars per 1,000 people, while only 18% of the population owns na refrigerator and 56% owns a TV. However, sales growth in most consumer goods is strong. For example, about 1.5 million microwave ovens are sold every year in India and the market is growing at 40% pa, while refrigerator sales are rising by more than 30% every year.

The threat from inflation is no longer seen as a cause for concern, indicating that the economy is under control.

Source : Girafood

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