With more than three-fourths of the milk being procured through cooperatives from farmers, most dairy firms were also compelled to increase the procurement prices to protect supplies from farmers, leading to pressure on margins.
Amul succeeded in garnering a market share of 6 per cent in Hyderabad within three months by selling more than 100, 000 litres of milk a day. Hyderabad is among the key milk markets in the region, with a demand of 24 lakh litres a day, making for a Rs 3, 500 crore market which is growing at over 10 per cent a year.
The state-owned dairy firm Vijaya Milk is the market leader, with a share of over four lakh litres a day, followed by Heritage Foods, Tirumala Milk, Jersey and Dodla, among others.
"Encouraged by the response, we are now targeting to triple our daily sales over the next year, " said Amul's local business head SVR Chary, attributing the success mostly to purging certain layers of middlemen involved in the procurement system that helped slash retail prices and retain reasonable margins.
In response, several dairies in the region are also looking at innovative strategies to preserve profit margins by purging the intermediaries and passing on the benefits to the consumers. EN Rao, executive director of Tirumala Milk Products, which was bought by the French dairy Lactalis, said most dairy players were facing the heat on account of aggressive pricing by Amul.
"We are currently working on some strategies to handle the competition. Our board is yet to approve the strategy that the company should adopt in the evolving competitive environment, " he told ET. US-based private equity firm Black River Asset Management-backed Dodla Dairy does not feel the need to slash prices. "Milk production in both the Telugu speaking states of Telangana and Andhra Pradesh is very high at present, with surplus production. Hence, we think there is no need for knee-jerk moves and the procurement prices will stabilise soon, " said Dodla Dairy's MD D Sunil Reddy.
Amul has entered into an arrangement with the Milk Producers' Mutually Aided Cooperative Union of Nalgonda and Rangareddy to procure more than 20, 000 litres of milk locally, said the cooperative's MD B Yugandhar Reddy. On the aggressive pricing strategy of Amul and its likely impact on price realisations of milk farmers, Reddy said, "We can operate at a cost-to-cost basis since it is a farmers' cooperative and we are satisfied with the thin margins."