According to a report by Rabobank, global milk production costs are projected to rise and experience increased volatility over the next decade.
The Netherlands-based financial services group attributes this rise to regulatory pressures, costs linked to the energy transition, and escalating interest rates.
Furthermore, Rabobank indicated that milk production costs have “structurally increased” across markets from 2019 to 2024. Consequently, dairy farmers can expect their operating expenses to continue to climb.
Notably, the report states, “A volatile operating environment, alongside increasing regulatory pressures, will raise the complexity of dairy-farming businesses.”
Moreover, the consolidation and rationalization of dairy industries in specific regions may intensify due to these changes.
In eight primary dairy-producing regions—Argentina, Australia, California, China, Ireland, New Zealand, the Netherlands, and the Upper Midwest of the US—total production costs have surged by approximately six US cents per litre, reflecting a 14% increase over the five years leading to 2024, as reported by Rabobank.
More than 70% of the cost increase occurred after 2021, partly due to the effects of Russia’s invasion of Ukraine on prices for inputs. Additionally, dairy producers have felt the impact of rising interest rates as central banks attempt to curb inflation.
When assessing local currencies, production costs for dairy in the US, the Netherlands, and China were found to be 10% to 20% higher in 2024 compared to 2019.
In contrast, dairy producers in Australia and New Zealand experienced cost increases around 25%, with those in Ireland and Argentina facing even steeper hikes of 30% to 40%.
Feed costs remain the predominant expense for dairy farmers, with both the volume and price of feed significantly influencing total production costs.
Last year, Oceania dairy farmers achieved the lowest production costs, outpacing other regions by 17% when adjusted for standardized milk composition and regional costs, measured in US dollars.
However, the US dollar’s 10% appreciation against Oceania currencies that year placed US dairies at a competitive disadvantage.
In a notable shift within the global dairy trade, China has enhanced its competitiveness on the world stage, largely fueled by substantially lower feed prices over the past three years.
The report highlighted that ongoing management of cost structures concerning milk output will be critical for ensuring the economic resilience of dairy farmers amidst a potentially volatile business environment.
Emma Higgins, senior agriculture analyst at Rabobank, reiterated: “Adapting to these changes by mitigating or controlling costs will be crucial for survival and success in this new era. Producers who focus on enhancing production efficiency are better positioned to overcome these challenges, particularly as increasing stocking rates is less feasible in Oceania and Europe.”
“Conversely, dairy producers in the US and Argentina, who do not face stocking limitations, find themselves in a more advantageous position for expanding milk supply in the future.”
