India faces milk fat shortage: butter prices up 54% as buffalo milk output declines

The news

India is facing a structural shortage of milk fat, even as it remains the world’s largest milk producer, according to an analysis of dairy market trends. The imbalance has pushed average ex-dairy prices of butter up by over 54% between October 2023 and October 2026, while skimmed milk powder (SMP) prices rose only 18% in the same period. The shortage affects consumers of ghee, butter, paneer and other high-fat dairy products, whose demand has been rising faster than supply.

The core of the problem is a shift in the composition of India’s milk output. Buffalo milk, which contains 6.5% fat, now contributes only about 45% of national production, down from roughly 60% three decades ago. Cow milk, with 3.5% fat, has filled the gap. Although aggregate milk production has been growing at about 3% annually, the declining share of buffalo milk means less total fat is being produced. Demand has been further boosted by the September 2025 cut in GST on ghee, butter and cheese from 12% to 5%, on ice-cream from 18% to 5%, and on paneer from 5% to zero, as well as by heightened consumer awareness after the Tirupati laddu scandal in September 2024, which led to stricter enforcement by the Food Safety and Standards Authority of India (FSSAI) against adulteration. The result, officials and analysts say, is a fundamental imbalance: India is surplus in skimmed milk powder but deficit in milk fat.

Why is buffalo milk output declining?

Buffaloes have a longer calving interval and lower milk yield per lactation compared to crossbred cows, making cow rearing more attractive to commercial dairy farmers. The change has been gradual over three decades, reflecting changes in breed preferences, feed availability and market incentives.

What has the fat shortage achieved and missed?

The shortage has achieved a sharp increase in prices of high-fat dairy products, benefiting producers of genuine ghee, butter and paneer. Regulatory crackdowns after the Tirupati laddu scandal have reduced adulteration with palm oil, vegetable oils or animal fats such as tallow and lard. However, the shortage has also created a structural imbalance: meeting fat demand through more cow milk produces excess skimmed milk powder (SMP), for which domestic demand is not growing as fast. This could lead to a surplus of SMP alongside a deficit of fat, pushing up prices of traditional dairy products and potentially encouraging adulteration if supply gaps persist.