Milk production on the transformation path

Over the years, the EU milk production has become highly intensified and specialised. In 2020, around 80 % of EU milk was produced in intensive systems (above 1.4 livestock units per ha) while more than 93 % came from specialised farms, with a lower share in Eastern EU countries (e.g. in Czech Republic 64 %, Slovakia 67 %, Hungary 76 % and Poland 88 %). This transformation was further differentiated by the availability of capital investment, dependency on purchased feedstuffs (on average more than 30 % of total farms’ costs) and lower demand for hired labour due to more automated processes and higher labour requirements. Meanwhile, EU dairy farms have become larger (58 cows per farm in 2020 compared to 38 in 2010), rely more on compound feed, and are characterised by more controlled production conditions (e.g. computerised feeding, milking robots, measurement of individual cow’s performance and health). In recent years, more attention has also been paid to animal welfare, and to improving the sector’ sustainability (e.g. focusing on biogas production, manure treatment, carbon sequestration, extensive grazing, reduced use of antimicrobials).

Specialisation and intensification led to higher productivity. In 2020-2022, the EU milk yield is more than 7500 kg/cow (20 % above 2010-2012). At the same time, the gap between Western and Eastern EU countries declined (by 9 pp to 28 %), while the dairy herd was reduced. Sustainability, health, quality concerns and preferences drove consumer choices, and led to an increase in alternative production systems. This prevented further herd reduction but lowered the yield growth. In 2020, the share of organic milk was around 4 %, and the share of milk produced in extensive milk production systems around 20 %.

Reduced but sustainable milk production growth

Sustainability drivers will continue shaping EU milk production up to 2032. The added value will be generated through high quality and sustainability standards and diversified production systems (e.g. organic, quality schemes). Environmental concerns will likely push the dairy herd further down (-10 % compared to 2020-2022), mostly in intensive systems while alternative production systems could grow. Social elements, such as a focus on animal welfare (and so better animal health care and well-being), could also contribute to increasing yields. However, the growth will be only half what it was in the past (0.9 %), which was driven by productivity gains and structural changes, especially in Eastern EU countries.

Overall, increasing yields could not offset the reduction of the dairy herd, and so total EU milk production could decline by 0.2 % per year by 2032. This drop is likely to be driven by EU-14 countries (6 million t), while the rest of the EU could compensate for half of it.

Global production and consumption growth led by developing countries

Globally, milk production growth will be at a comparable level to 2012-2022 (around 2 % per year). However, while in the past decade the EU contributed to growth by around 10 %, due to the expected production decline, shares from other countries and regions will grow. This should also be attributed to ongoing efforts to increase their own self-sufficiency by increasing cow herds and improving productivity. Among others, Asian and African countries could contribute by almost one third to the expected growth. Around 8 % of milk will remain traded globally (which is comparable to the current level) by 2032. Additional production capacities in Africa and Asia will be absorbed by domestic markets. The population and income increase in Africa is expected to contribute the largest share to the nine-fold dairy consumption growth on the continent. Among Asian countries, destinations other than China and Japan will grow the most their consumption (by around 35 % in volume compared to now).

EU remains largest dairy exporter, US shares increasing

Despite increasing self-sufficiency rates, the main importing countries will remain in deficit, and therefore needing to import dairy products, although less than in the past (1.3 % annual deficit growth in 2022-2032, compared to 5 % in the past).

The EU and New Zealand will remain the main exporters (around 24 % both, with the EU set losing around 3 pp compared to 2020-2022). As US production will grow the most among the largest dairy exporters, this will allow them to gain further market shares and reinforce their third position (17 % in 2032, compared to 13 % now), with some increase likely to come from South America as well.

Differentiation of global imports supporting EU trade

The expected reduction in global imports will mostly impact skimmed and whole milk powders. Their annual growth rates are likely to drop by 2.3 pp and 2.1 pp respectively. As they are mainly used as an input for processing in final destinations, increasing milk production will reduce their needs, in addition to already high levels of growth achieved in 2012-2022. By contrast, cheese, and whey exports growth could be reduced less, while butter shipments could even increase.

While these trends illustrate volume growth, there will also be a change in the quality portfolio, differentiated by sophistication of targeted markets, and so the potential to add value to traded dairy products. This is already illustrated by the re-direction of milk powder’ shipments between African and South-Eastern Asian markets. At the same time, rising disposable incomes in the medium term and increased global consciousness about sustainability, health and nutrition quality are likely to push demand for high quality products for which the EU is already well-known and well-positioned globally.

Increasing milk solids supporting processing availability

Reduced EU milk production also implies a lower availability of milk solids for processing. However, the drop is not likely to be proportional. Some improvements in milk composition could be achieved, for example by feed, or replacing cow breeds. In the past, the progress on average EU milk solids content was also due to growth in some EU countries whose dairy herd is composed of cows producing milk of a higher milk content (e.g. Austria, Denmark, Ireland). In addition, increasing shares of pasture-based systems and organic ones could contribute to a higher availability of milk components, especially fats. On the other hand, the downward push could be linked to fluctuations in feed quality as well as potentially some heat stress as observed in 2022. Therefore, the growth of both could be rather limited (0.1 % per year by 2032).

Cheese and whey gaining shares in the milk pool

Improved milk content is only expected to offset some decline in EU milk availability. This implies some adjustments in the dairy products portfolio. Diversified and changing consumer preferences, competitiveness with other global suppliers, and the potential to generate added value will be among the most influential factors channelling the reduced EU milk pool to different dairy products. The cheese and whey production stream are expected to grow by around 4 million t of milk and could absorb 38 % of EU milk (35 % in 2020-2022). Skimmed milk powder (SMP) and butter combined could grow to a limited extent (1 million t) while other dairy products are likely to decline for different reasons, such as the EU competitiveness (e.g. whole milk powder - WMP), ongoing EU consumption decline (e.g. drinking milk) or reduced global demand (e.g. infant formula due to lower birth rates in China).

Consumer dairy products more fortified and functional

Domestic market is expected to remain the main outlet for EU milk (86 % in 2032). Overall, EU per capita consumption of dairy products is due to slightly decline (-0.3 % per year by 2032) but from a relatively high level achieved thanks to extraordinary circumstances during COVID-19 (2020) and the subsequent recovery (2021). In the next decade, it is likely that consumer preferences will change, and so also expectations of dairy products. According to some recent research16, young consumers (18-35 years old), are more inclined to increase consumption of dairy products with less fat, low sugar or without allergens. At the same time, there is increasing demand for fortified (e.g. with added vitamins or minerals) or functional dairy products (e.g. for specialised nutritional needs).

Cheese market to continue growing

The flagship EU dairy product, cheese, will continue to benefit from increasing exports (1.4 % per year). EU consumption could grow further (0.3 % per year), relative to high levels in 2020-2022, which was due to retail demand during COVID-19 outbreaks in 2020, and the foodservice recovery in 2021.

Among other dairy products, drinking milk is expected to continue to decline while per capita consumption of yoghurts could remain stable, and other fresh dairy products could grow. These developments are to be supported by consumers’ interest in fortified products (e.g. extra proteins) or due to changing lifestyles (e.g. drinkable yoghurts). However, this would not prevent EU consumption to decline (-0.6 % per year). Prospects remain positive for EU exports (reaching up to 1.8 million t by 2032), particularly thanks to foodservice growth in China.

The EU butter market is expected to remain relatively stable, both in terms of consumption and exports (although slightly declining compared to high levels in 2021). However, more competition with other fats could take place, especially in home cooking and foodservice (e.g. olive oil).

Whey powders gaining value thanks to food use

EU whey powder production, a co-product of cheese production, is expected to grow (1.1 % per year), with positive prospects both in EU use (+1 % per year) and exports (+1.3 %). Globally, demand is driven by increasing food use, also supporting a stronger exploitation of the EU whey market. The reduced global imports, and stronger competition, will likely reduce EU SMP export growth and they could remain at a comparable level to 2020-2022. Domestic use could grow around 1.4 % per year. By 2032, the EU, formerly an export-oriented SMP market, will be more balanced between domestic use and exports. Not only reduced global imports, but also low EU competitiveness will contribute to the production decline in WMP (-21 % by 2032) as EU exports could drop by 5 % annually (relative to the high 2020-2022 average). Domestic use could also drop by around 0.6 %, as the confectionery sector and some alternatives to dairy ingredients might gain more popularity, due to price or consumers’ move towards veganism.

New milk price equilibrium higher than in the past

It will take a few years before the market establishes a new price equilibrium (assumed to happen in 2025) and dairy prices will grow again thereafter. By 2032, EU cheese and whey powders prices are expected to increase the most, compared to a high 2020-2022 average (0.7 % and 2.4 % per year respectively), while the EU butter price could reach a comparably high level again by 2032. The SMP price could also grow. This would support EU raw milk price to reach around EUR 45/t by 2032. This price level would allow to cover for increasing costs while creating an added value through differentiated products.