The dairy industry has experienced volatile times in the past – but the current challenges require an even closer look in terms of developments on farms and upstream and downstream in the value chain. The question arises: What is different compared to the past – are we experiencing a new “reality” in the dairy industry?
At IFCN, we believe that competition for raw materials will intensify in the future. Even without the current events such as high input prices, unprecedented milk prices, inflation, and market distortions due to the war in Ukraine, the sector is under enormous cost pressure. In the past, high milk prices usually led to an increase in milk production – however this is no longer the case.
Demand has experienced a healthy growth over the past 10 years, with a total growth in the annual demand of +2.5% (CAGR) thanks to a +1.4% increase in per capita demand and an additional +1.1% increase due to population growth. This has not changed in the two years of the pandemic. What is different is that milk production remains tight worldwide, even showing negative year-on-year figures in the main net exporting regions of dairy products. This is where the old industry challenges, particularly farm profitability and cost of production, now meet the new reality. Even the high prices cannot hide the stale margins, which are coming under further pressure due to current feed, fuel, and fertilizer costs. For example, feed costs account for 30-60% of a dairy farm’s total costs, depending on the region, country, or housing system, and now pose an immediate threat to farms. Based on Typical farms surveyed by IFCN, even before the current crisis, 84% of farmers in the EU could not cover their costs. Every year, 6% of dairy farms in the EU go out of business and by 2030, this is expected to be 50% of farms. This is not solely due to the economic situation, but it is also aggravated by problems with farm succession, as well as animal welfare and environmental protection requirements.
Where to go from here? Global competition for milk and competition for dairy farms will intensify and change the dairy industry’s previous attitude to milk supply. New strategies for supply and a focus on efficiency are needed now more than ever. If you would like to learn more about this topic, contact us below!
