Authors: Kyle Saukas, Matthew Piotrowski, Aishwarya Jadhav

India’s Dairy Sector Could See Emerging Opportunities Spoil If It Fails to Manage Climate Transition Risks

India’s dairy sector is crucial to its economy and culture, but market stakeholders shouldn’t view climate transitions as sour news

India’s dairy sector is a pillar of its economy, contributing $125 billion or nearly 5 percent of the national GDP. It is also a culturally important sector meeting significant domestic demand and supporting the livelihoods of nearly 80 million producers – accounting for close to half of the global total.

Yet, the sector is not immune from climate transitions and urgent action is needed.  Physical climate impacts already threaten producers and production through heightened risks of drought. In addition, increased global efforts to grapple with climate change expose India’s dairy producers to the impacts of climate transitions. Financial Stakeholders—including large companies, investors, and policymakers—must recognize and address the risks associated with climate transitions while simultaneously capitalizing on the significant opportunities they present to safeguard the sector’s future.

India’s Dairy Sector Is a Growing Giant

India holds the title of the world’s largest dairy producer, accounting for nearly a quarter of global milk production. The sector has grown rapidly, with milk production increasing by 61 percent from 2013 to 2022, reaching 230.58 million metric tons. Despite this growth, inefficiencies plague the sector. Milk yields in India remain about half of those achieved in countries like Brazil, underscoring a critical productivity gap.

Domestically, dairy is essential, with cultural and dietary preferences making it a staple food source and making the nation the highest consumer of dairy per capita in the world. The vast majority of the country’s production is consumed locally, with exports contributing just 0.25 percent to the global dairy trade.

Yet, for 2022-2023 these exports were still worth USD 101 billion USD, and the India Dairy Association is pursuing an export-oriented growth strategy, in recognition that domestic consumption will not suffice to sustain recent. The Indian government’s White Revolution 2.0 strategy also aims to boost production further and expand export opportunities.

Climate Change and India’s Dairy Sector

In 2023 India was the 2nd largest global emitter of methane. Methane has a global warming potential that is 28 times greater than carbon dioxide and is a major target of current climate initiatives because reducing methane emissions can cut near-term global warming significantly, a crucial goal as the world strays from its climate targets and puts India’s diary sector under a spotlight.

India’s methane emissions in 2018 equaled roughly 891.33 million metric tons of carbon dioxide equivalent (CO₂e). The cattle and dairy sectors are major contributors, with livestock accounting for approximately 451.1 million metric tons CO₂e (48 percent of these emissions). For comparison, this is greater than the combined total greenhouse gas emissions of France and Monaco in 2023 (385.52 million metric tons CO₂e).

Market Risks for India’s Dairy Sector

The rise of milk substitutes poses a threat to the Indian dairy industry. The market size for milk alternatives in India reached USD 1 billion in 2024, growing significantly in recent years and is expected to almost triple by 2033 compared to current levels. Market forecasts for the alternative dairy and eggs market predict growth through 2030 with a Compound Annual Growth Rate of 30 to 36 percent and an increase in market value from USD 21 billion in 2021 to USD 86-172 billion by 2030. In fact, 29 percent of surveyed Indian consumers, according to research conducted in 2019, said that they actively seek ethical claims on food labels, highlighting the importance of being proactive in maintaining a positive reputation through sustainability practices.

For India to continue growing production, providing jobs and economic stability for its dairy producers it will need to direct additional production towards export markets. Exports will face competition from alternative dairy products and greater demands for sustainable products in some markets. Failure to meet these expectations could limit India’s ability to expand its export footprint.

Reputation Risks for India’s Dairy Sector

India’s dairy production is resource-intensive and inefficient relative to peer producers. The country’s average milk yield per cow is around 8-10 liters per day, much lower than similarly developed nations. This inefficiency results in an outsized environmental footprint, drawing upon resources like water, land, crops and more.

As climate policies tighten globally, India’s dairy sector will face heightened scrutiny, damaging its reputation and creating additional challenges for attracting investment or expanding exports. With livestock contributing to nearly half of India’s methane emissions livestock, stakeholders should proactively act to address this challenge to maximize potential export opportunities and to prevent harmful reputational impacts of association with high levels of methane emissions or environmental impacts.

Technology Risks for India’s Dairy Sector

New technologies and methods to improve the efficiency of production, management of livestock and preservation of dairy products could be game changers for India’s dairy sector. India has a noted efficiency issue being home to half of the world’s dairy producers but creating only a quarter of the world’s supply and half the milk production of livestock in competing countries. Efforts are already underway in India to implement solutions to improve efficiency but stakeholders risk becoming uncompetitive if they don’t amplify and secure continued adoption of technological upgrades.

• Production Efficiencies: Solutions include breeding programs that can lead to more production from each individual cow and veterinary programs to keep livestock healthy and producing more milk are critical solutions to make the sector more efficient. India has already created the National Livestock Mission focused on breed improvement, and the National Dairy Development Board of India, in partnership with Cornell University and the Environmental Defense Fund, has developed the Cornell Net Carbohydrate and Protein System, an initiative facilitating improved nutrient management.
• Emission Reductions: To address India’s methane issue for its livestock, feed additives such as nitrate salts, enzyme inhibitors and fat supplements are possible options to cut livestock methane emissions by between 10 and 40 percent. Natural solutions such as seaweed have shown potential reductions of up to 80 percent.

These solutions can be found in many of India’s policies today but labeled under different purposes like the White Revolution 2.0 initiative focused on economic development and farmer resilience. However, the scale of India’s dairy sector means more capital for these solutions is likely needed to curb financial risks.

Policy Risks for India’s Dairy Sector

India’s government has yet to fully address the sector’s climate impact, including methane emissions. The country has not joined the Global Methane Pledge, and its existing climate policies lack specificity for tackling emissions from livestock. However, policy action is inevitable, given the growing international focus on methane reductions as a cost-effective way to curb near-term global warming. When policy shifts occur, they may include stricter regulations, financial penalties, or mandatory adoption of sustainable practices. Companies and investors unprepared for these changes could face significant financial and operational disruptions.

Realizing Climate Transition Opportunities for Financial Stakeholders

While the risks are substantial, climate transitions also present opportunities for India’s dairy sector. Forward-looking companies and investors can leverage these opportunities to drive sector-wide improvements and secure competitive advantages.

• Enhancing Export Competitiveness: Expanding exports to high-value markets requires demonstrating sustainability and efficiency. Investments in emission-reducing technologies, water conservation practices, and transparent supply chains can position Indian dairy products as premium goods in global markets. These efforts align with consumer and regulatory demands, making the sector more attractive to international buyers.
• Attracting Climate Finance: Global climate finance initiatives offer significant funding opportunities for sustainable agriculture. India could replicate Brazil’s success in attracting private investment for low-emission agricultural models and nature-based solutions. By aligning dairy sector development with climate goals, stakeholders can unlock capital to support infrastructure upgrades, technological adoption, and farmer education.
• Building Resilience: Climate transitions provide an opportunity to build resilience against physical climate impacts, such as water scarcity. Efficient production methods and sustainable practices reduce resource dependence, ensuring long-term viability for producers. Additionally, integrating climate considerations into business strategies can mitigate reputational and regulatory risks.
• Leveraging Policy: India’s commitment to the dairy sector provides opportunities for new types of policies for producers and value chain companies to receive support to reduce emissions and risk. It is feasible for India to develop new types of loans, much like Brazil has, that subsidize the deployment of technologies and training for producers to improve their resilience to warming temperatures and reduce emissions, and thus financial risk.

Climate Transitions Can Help India’s Dairy Sector Grow

India’s dairy sector is at a pivotal moment. As a strategic industry positioning itself for export-led growth, the industry will require a global view of risks – including the current State of Climate Transitions.  Material financial risks are present today, from substitute dairy products to inefficient and non-resilient production practices. These challenges will deepen as India seeks exports to markets with sustainability-conscious consumers and policymakers. However, a solution pathway that combines innovation, resilience, and productivity growth would help dairy producers navigate these challenges. For all stakeholders invested in the sector’s growth, recognizing and addressing these risks is essential to unlocking its full potential.

By embracing sustainability and efficiency, India’s dairy industry can not only navigate the challenges of a low-carbon economy but also emerge as a leader in sustainable agriculture. The time for action is now.