Surging Butter and Ghee Prices Reveal a Deep Fat Shortage in Indian Dairies

India is facing a major shortage of milk fat rather than total milk volume, pushing up prices for everyday items like butter and ghee across the country. According to United States Department of Agriculture data, milk production grew from 165.1 million tonnes to 216.5 million tonnes between 2016 and 2025, but growth is expected to slow down to 222 million tonnes in 2026 and 226.5 million tonnes in 2027. This slowdown is tied to tighter feed supplies and lower animal productivity caused by El Niño droughts in key states.

Rising Prices and Market Pressures

While skimmed milk powder prices rose by just 18 percent from Rs 250 to Rs 295 per kilogram between October 2023 and October 2026, average ex-dairy butter prices jumped by 54.3 percent, moving from Rs 348 to Rs 537 per kilogram. Major cooperatives have had to raise retail rates. The Gujarat Cooperative Milk Marketing Federation increased Amul cow ghee to Rs 735 per litre and table butter to Rs 325 per 500-gram pack starting November 2. Similarly, the Karnataka Milk Federation raised Nandini toned milk to Rs 54 per litre and its one-litre ghee sachets to Rs 850.

Causes of the Shortage

Industry experts point to four main drivers behind the squeeze. First, lower Goods and Services Tax rates implemented since September 2025 have driven up consumer demand for high-fat dairy goods. Second, strict food safety crackdowns by authorities against adulterated ghee and fake paneer following the September 2024 Tirupati laddu scam have made high-solids milk much more valuable. Third, heavy exports of milk fat during 2024-25 and 2025-26 drained domestic stock reserves. Fourth, overall milk production growth has slowed, leaving dairies struggling to procure enough stock.

Buffalo Population and Future Outlook

Another factor is the dropping contribution of buffaloes to national milk production, falling from about 57 percent in 2000-01 to roughly 45 percent today, which drives up buffalo milk procurement costs. Relief may come soon as winter and spring bring the flush season when animals produce more milk, while post-Diwali demand typically cools down.

Context

Milk solids are split into fat and solids-not-fat components, with butter and ghee depending heavily on the former for their richness and market value. Dairy cooperatives balance regional supply and demand by adjusting procurement rates paid to farmers alongside retail prices for consumers.