Global milk production costs are expected to rise and become more volatile over the next ten years, according to a report by Rabobank.
The Netherlands-based financial-services group pointed to regulatory pressure, the costs associated with the energy transition and higher interest rates.
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Milk production costs “structurally increased” across markets between 2019 and 2024 and farmers are likely to see operating expenses continue to rise, the bank said.
“A volatile operating environment, alongside increasing regulatory pressures, will raise the complexity of dairy-farming businesses,” Rabobank’s report said.
“Consolidation and rationalisation of dairy industries in certain dairying regions may increase due to the above changes.”
In eight major dairy-producing regions – Argentina, Australia, California, China, Ireland, New Zealand, the Netherlands, and the Upper Midwest of the US – total production costs grew by around six US cents per litre, a 14% increase over in the five years to 2024, Rabobank said.
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By GlobalDataMore than 70% of the rise in costs occurred after 2021, in part due to the impact of Russia’s invasion of Ukraine on input prices. Dairy producers also felt the cost of higher interest rates as central banks tried to dampen inflation.
When measured in local currencies, production costs in the US, the Netherlands and China were 10% to 20% higher in 2024 versus 2019.
In contrast, dairy producers in Australia and New Zealand faced increases of around 25%, while those in Ireland and Argentina saw even steeper hikes of 30% to 40%.
Feed costs remain the largest expense for dairy farmers, with fluctuations in both the volume and price of feed affecting total production costs.
Last year, Oceania dairy farmers achieved the lowest production costs, outperforming other regions by 17% when adjusted for standardised milk composition and regional costs in US dollars.
However, the 10% appreciation of the US dollar against Oceania currencies that year placed US dairies at a competitive disadvantage.
In a significant shift in the global dairy trade, China has become more cost-competitive on the world stage, driven by significantly lower feed prices in the last three years.
The report noted that continued management of cost structures, in relation to milk output, will be essential for maintaining dairy farmers’ economic resilience in what could be a volatile business environment.
Emma Higgins, senior agriculture analyst at Rabobank, added: “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, are in a more favourable position for expanding milk supply in the future.”
