Market conditions stem from a broader industry transition marked by supply variability over recent years. After a period of surplus during the flush season of 2024–25, unseasonal weather events and strong festive demand depleted inventories, tightening available milk volumes and elevating costs for procurement even as retail pricing remained constrained by policy measures.

The squeeze on margins is putting pressure on trust relationships between dairy cooperatives and their farmer members. As milk prices climbed and collection costs rose, some smaller suppliers have faced revenue volatility, forcing industry stakeholders to seek greater transparency in supply arrangements and cost structures to maintain long-term producer engagement.

In response to rising costs and supply uncertainty, a notable shift toward value-added products — such as paneer, curd, ghee and branded dairy beverages — is emerging as a strategic buffer. These products help diversify income streams for processors and offer consumers perceived higher nutritional value, aligning with changing demand patterns in urban and rural markets alike.