Global milk production costs structurally increasing - Rabobank
Rising costs driven by regulatory pressures, higher interest rates
27 January 2025
2 minute read
By: A recent report by RaboResearch highlights a significant rise in milk production costs from 2019 to 2024. The operating cost environment for average milk producers is likely to be more expensive and variable over the next 10 years compared to the last decade. Driving this increase are structural factors such as regulatory pressures, energy transition costs, climate change impacts, and higher interest rates.
Cost pressures felt across the globe
Dairy farmers worldwide are experiencing the pressure of rising milk production costs. Across eight regions – Argentina, Australia, California, China, Ireland, New Zealand, the Netherlands, and the Upper Midwest – total production costs have surged by approximately USc 6/liter, marking a 14% increase from 2019 to 2024. Notably, over 70% of this increase has occurred since 2021.
According to Emma Higgins, Senior Agriculture Analyst for RaboResearch, the primary driver of these rising costs is farm working expenses, which have also risen by 14% since 2019. Feed expenses remain the largest cost category, with fluctuations in the volume and price of both homegrown and purchased feed significantly impacting total production costs and global competitiveness.
A global overview of milk’s cost of production
In 2024, Oceania dairy farmers achieved the lowest production costs, outperforming other regions by a margin of 17% when adjusted for standardized milk composition and regional production costs in US dollars. However, the appreciation of the US dollar by around 10% against Oceania currencies in 2024 placed US dairies at a comparative disadvantage.
China has emerged as more globally cost-competitive due to notably lower feed prices. When comparing costs in local currencies, production costs in the US, the Netherlands, and China were 10% to 20% higher in 2024 than in 2019. Meanwhile, producers in Australia and New Zealand faced increases of around 25%, and those in Ireland and Argentina saw cost hikes of 30% to 40%.
Mitigating or controlling costs will be key for the business
As production costs rise, dairy producers face increased vulnerability during milk price downturns.
“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,” said Higgins. “Conversely, dairy producers in the US and Argentina, who do not face stocking limitations, are in a more favorable position for expanding milk supply in the future.”
