Erode, Tamil Nadu: As India’s milk production growth slows and demand continues to rise, Milky Mist Dairy Food Ltd. is turning to an unconventional strategy to secure its future milk supply: contract dairy farming.
The Erode-based value-added dairy company, which is preparing for its much-anticipated public listing, has established around 500 contract dairy farms across Tamil Nadu over the past 18 months. The initiative forms part of the company’s broader plan to improve milk productivity, enhance quality, and address growing supply constraints in India’s dairy sector.
The company is now looking to scale up the model by developing larger farms housing 50 to 100 cows or buffaloes, following the success of its initial network of farms with 15–25 animals each.
Addressing a Growing Supply Gap
India remains the world’s largest milk producer, but industry growth has moderated in recent years.
After expanding at an annual rate of 6–7% until 2022, milk production growth has slowed to approximately 3.5–3.8%, while demand continues to increase at 6–7% annually, creating an emerging demand-supply imbalance.
“The Indian dairy farming sector goes through cyclical phases,” said K. Rathnam, Chief Executive Officer of Milky Mist Dairy Food. “When milk prices decline, many marginal farmers reduce spending on cattle nutrition and breeding, which impacts productivity. As a value-added dairy manufacturer, our milk requirement is significantly higher.”
According to Rathnam, producing one kilogram of value-added dairy products typically requires between five and seven litres of milk.
Learning from Europe
Milky Mist’s contract farming model draws inspiration from dairy-producing nations in Europe, where larger, professionally managed dairy farms play a central role in ensuring consistent milk supply.
Read More: Milky Mist Eyes India’s Largest Dairy IPO with ₹1,553 Crore Issue
Under the model, the company partners with farmers who possess relatively larger landholdings and supports them in establishing commercial dairy operations. Assistance includes facilitating bank loans for cattle purchases and encouraging investments in fodder cultivation.
The strategy is designed not only to secure milk procurement but also to improve farm economics.
Focus on Nutrition and Productivity
One of the key challenges identified by the company is inadequate cattle nutrition.
Farmers often rely on dry fodder such as paddy and wheat residue, which can result in lower feed intake and reduced milk yields. To address this, Milky Mist is promoting the use of:
- Green fodder cultivation
- Silage production
- Total Mixed Ration (TMR) feeding systems
TMR combines multiple feed ingredients into a nutritionally balanced ration, helping improve animal health, productivity, and milk quality.
“These interventions improve farmers’ profitability because they generate better productivity throughout the year,” Rathnam said.
Farmers participating in the contract model receive milk procurement rates comparable to other suppliers. However, the company offers an additional incentive of ₹0.50 per litre for improved milk quality.
Sustaining Value-Added Growth
Milky Mist currently procures approximately 14 lakh litres of milk per day, which supports its growing portfolio of value-added dairy products.
The company produces:
- 60–80 tonnes of paneer per day
- 20 tonnes of mozzarella cheese per day
The focus on securing raw milk supplies has become increasingly important as Milky Mist expands its presence in premium dairy categories, including cheese, yoghurt, and specialty dairy products.
Industry experts note that value-added dairy businesses are particularly vulnerable to fluctuations in milk availability, given their significantly higher milk conversion requirements.
Balancing Scale and Inclusion
Despite its growing emphasis on contract farming, Milky Mist has indicated that it will continue procuring milk from small and marginal farmers.
At collection centres such as the one in Ellamadai village near Erode, approximately 35 farmers supply between 10 and 14 litres of milk daily, earning around ₹35–₹40 per litre.
However, rising feed costs, rainfall deficits, and climate-related challenges have increased production expenses by an estimated 35–40%, leading some farmers to reconsider dairy farming as a viable livelihood.
By combining support for smallholders with investments in larger commercial farms, Milky Mist hopes to create a more resilient procurement ecosystem.
As the company prepares for its IPO and continues to expand its value-added portfolio, its contract farming initiative could offer a glimpse into the future of Indian dairying—one where technology, nutrition, and scale work together to meet the demands of a rapidly growing market.
For India’s dairy industry, the message is becoming increasingly clear: sustaining growth may require moving beyond milk collection and investing directly in the productivity of the farm itself.
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