Archive for market consolidation

Riverview Dairy’s Massive Expansion: A Death Knell for Small Dairy Farms?

How are North Dakota’s mega dairy farms changing the industry? What are the impacts on small dairy farmers and the future of traditional farming?

Deeply rooted in North Dakota’s agricultural heritage, dairy farming has always been synonymous with small, family-owned farms. They are recognized for preserving rural vitality and agricultural heritage and providing fresh milk for local markets. Their legacy of dedication, blending contemporary needs with heritage, is a testament to their commitment and values.

One farmer aptly captures the essence of farming, saying, “Farming is not just a heritage; it’s a way of life. Our milk nourishes not just our bodies but also the fabric of our communities.” This personal connection to their work makes these farmers’ struggles very relatable.

Nowadays, large commercial dairy farms interrupt this traditional setting. The growth of mega-dairies in North Dakota is altering the tale of dairy farming and calling into question the future sustainability of small, family-run farms and the communities they serve.

The Unstoppable Rise of Mega-Dairies: Riverview Dairy’s Expansion in North Dakota

With Riverview Dairy’s most recent developments in North Dakota, dairy farming is changing dramatically. These gigantic new mega-dairies will have 25,000 and 12,500 cows, respectively. This move represents a significant break from the usual small-scale dairy operations that most people are familiar with.

The investment is equally impressive based on capital costs of $7,200 per cow. This equates to around $180 million for the larger farm and $90 million for the smaller one. These numbers illustrate an industrial trend in less crowded places, mainly west of the Mississippi River, favoring new mega-farms.

Mind-Boggling Milk Production: Riverview Dairy’s New Mega-Diaries to Transform Industry Standards

The new mega-diaries of Riverview Dairy in North Dakota are intended to generate incredible daily productivity. The largest farm, with 25,000 cows, is expected to produce over 300,000 gallons of milk daily. This emphasizes these contemporary facilities’ enormous production potential and helps define their relevance in the American dairy industry.

A striking distinction emerges when these figures are compared to those of smaller dairy farms. A simple farm of 150 cows might produce 1,800 gallons of milk daily. The largest farm in Riverview produces almost 167 times more milk than a typical small farm; even the second farm, which has 12,500 cows, can produce around 150,000 gallons per day.

Because of developments in automation and specialization, mega-dairies can now operate efficiently and produce on a large scale. This has led to increased efficiency and technological advancements in the dairy industry. However, this also raises questions about the environmental impact and sustainability, notably regarding water management and pollution. Many dairy farmers consider this a significant industrial revolution that necessitates rethinking dairy production’s future.

Riverview Dairy’s Green Energy Gamble: Turning Manure into Money and Mitigating Environmental Impact 

Riverview Dairy’s large-scale agricultural activities need thorough environmental monitoring. It is excellent that thousands of cows’ excrement can be handled to produce natural gas. These farms actively combat climate change by capturing methane, a potent greenhouse gas, as it breaks down manure and converts it into sustainable energy. This method benefits the national natural gas market and provides a better energy supply, lowering reliance on fossil fuels. By converting waste into a valuable resource, this strategy addresses traditional manure management challenges such as water contamination from runoff, demonstrating sustainable and productive farming practices.

With $7,200 invested per cow, it indicates enormous infrastructure requirements, and the costs and complexity associated with these systems are high. Even if hazards such as methane leaks persist, the method needs regular monitoring to ensure safety and efficiency. Furthermore, such large-scale operations have a significant environmental effect. While converting manure into natural gas has clear advantages, the massive waste these mega-diaries produce raises ecological concerns. Concentrating animals in compact locations can harm local ecosystems, alter biodiversity, and use a lot of land and water. It still needs to be resolved to balance the necessity to preserve local natural resources and the need for maximum efficiency.

The Unseen Economic Shifts: How Riverview Dairy’s Mega-DariesWill Redefine the Market Landscape

Riverview Dairy’s mega-diaries will transform North Dakota’s dairy landscape. With over 300,000 gallons of milk produced daily, one farm alone might tip the scales, resulting in market saturation and reduced milk prices. The industry has always struggled to balance demand and production, and these new mega-diaries may exacerbate the problem.

Riverview Dairy’s economies of scale may allow them to reduce expenses, putting smaller dairies at a competitive disadvantage. This might lead to market consolidation, forcing out traditional farmers and raising concerns about the industry’s resilience and diversity.

The ramifications will be felt both nationally and locally. A surplus of dairy products from more minor, more dispersed farms might increase price volatility. Although mega-dairies enable technological improvements and efficiency, disruptions such as sickness or legal changes may impact supply and pricing. Moreover, the shift towards mega-dairies could lead to the loss of small-scale farming traditions and the disruption of rural life in North Dakota.

The expansion of Riverview Dairy offers a glimpse into the future, stressing sustainability and economics. However, this underscores the need for strategic planning for all dairy farming community members, large and small. Potential solutions could include diversifying products, adopting sustainable practices, and forming cooperatives to enhance bargaining power and shared resource use.

The Global Shift to Industrial Dairy Farming: Riverview Dairy within the Larger Context 

As Riverview Dairy embarks on its daring North Dakota expansion, it is critical to analyze this in the context of broader dairy production trends. California and Texas are at the forefront of the move toward larger, more industrialized dairy farms in the US. California’s farms often exceed 10,000 cows, demonstrating the vast scale and efficiency driving this growth. Europe and New Zealand are following relatively similar worldwide patterns. While New Zealand emphasizes large, successful pastoral systems, Dutch and Danish farmers use advanced breeding and automated equipment to manage herds.

With tens of thousands of cows, Mega-farms are becoming the norm even in developing countries such as China. This global trend toward larger-scale, more efficient farms highlights how Riverview Dairy’s expansion fits into a much larger movement. The rise of these mega-dairies raises severe concerns for small-scale dairy farmers’ livelihoods. Cooperative approaches and innovative ideas are urgently needed to keep traditional dairy farming viable in this rapidly changing market.

How Mega-Dairies Are Redefining the Dairy Landscape: A Deep Dive into the Impacts on Small Farms 

Mega-dairies’ growth, such as Riverview Dairy’s new North Dakota operations, will significantly influence small dairy farmers. With 25,000 and 12,500 cows each, these enormous companies are very lucrative and efficient, fueling intense competition for smaller, family-run farms. Lower milk prices due to increased competition make it more difficult for smaller farms to remain viable with quality milk.

  • Competition: Small farms can’t compete with mega-dairies productivity, leading to lower market prices and squeezing their profits.
  • Financial Pressures: The immense investment in mega-farms, around $7,200 per cow, is beyond reach for small farmers. Rising feed, labor, and equipment costs without economies of scale put additional financial strain on them.
  • Industry Standards: Large farms drive industry regulations and standards, often making compliance difficult and expensive for smaller farms. For example, converting manure into natural gas, while beneficial, may be unaffordable for smaller operations.

These issues highlight a broader agricultural trend in which large, well-capitalized farms dominate the landscape. The industry’s evolution calls into question the status quo for a fifty-year-old dairy farmer. With rising concerns about the survival of small-scale dairy farming in the era of mega-dairies, the future favors those that can adapt, innovate, and scale.

Strategies for Small Farms Survival: Navigating the Mega-Dairy Era with Ingenuity and Innovation

As the dairy industry shifts with the rise of mega-dairies like Riverview Dairy’s massive operations in North Dakota, smaller dairy farmers must adapt to survive. Here are several key strategies: 

  • Diversification: Small farms can quickly pivot to include crop production, agro-tourism, artisanal cheese, and other specialized dairy products. Multiple revenue streams can insulate them from market volatility.
  • Niche Marketing: Emphasize organic, grass-fed, or ethical animal treatment. Building a brand based on local and sustainable practices can attract customers who are concerned about the environmental impact.
  • Adopting New Technologies: Use affordable farming tech like robotics for milking, AI health monitoring, and precision agriculture to boost efficiency and reduce costs. Grants and subsidies can help with initial investments.

By embracing these strategies, small dairy farms can succeed in an industry increasingly dominated by mega-dairies. Adaptability and innovation will be their key allies.

Future Horizons: The Battleground of North Dakota’s Dairy Industry and the Imperative for Small Farmers to Innovate or Perish

Riverview Dairy’s mega-dairies represent a significant shift in North Dakota dairy production. These large businesses employ the latest technology to increase efficiency and gain a competitive advantage over smaller farms. Small farms may face financial and productivity challenges if they cannot match these capital expenditures.

Environmental sustainability is also quite essential. Mega-dairies convert manure into natural gas, establishing new industrial standards. Smaller farms may need to install smaller-scale bioenergy projects or other sustainable initiatives to remain competitive in an environmentally conscious market.

Smaller farms must be reliant on innovative ideas. Niche marketing, including locally produced or organic items, may appeal to client preferences while fetching higher prices. Creating direct-to-consumer sales channels, such as local companies, farmers’ markets, or online sites, allows small farms to stand out from larger ones.

Although mega-dairies pose significant challenges, they also provide opportunities for small dairy farms ready for innovation. Technology, sustainability, and focusing on niche markets may all help small dairy producers thrive in North Dakota’s shifting dairy business.

The Bottom Line

The dairy industry is transforming significantly with Riverview Dairy’s new mega-farms in North Dakota. These vast facilities are the new standard for producing milk at a lower cost and more efficiently via economies of scale. They also prioritize alternative energy, such as converting dung to natural gas. On the other hand, small dairy farmers find this development challenging; it increases financial pressures and accelerates the decline of traditional farms. Small farm owners must adapt by encouraging inventiveness, concentrating on niche markets, and using advanced and sustainable practices. Despite its resilience, the agricultural community must band together to learn how to flourish in this rapidly changing agriculture and food world.

Key Takeaways:

  • Riverview Dairy’s new mega-dairies in North Dakota represent a significant industry shift to large-scale operations in less-populated areas.
  • The largest facility will house 25,000 cows and produce around 300,000 gallons of milk daily, showcasing the scale of modern dairy farming.
  • These operations increasingly focus on sustainability, with initiatives like converting manure into sellable natural gas.
  • The rise of mega-dairies presents significant challenges for small farmers, who must innovate and diversify to remain competitive.
  • Advantages for small farms can include adopting new technologies such as robotics and AI health monitoring.
  • Small farmers may find strength in numbers by considering cooperative models to combat market saturation and maintain fair pricing. 

Summary:

The article delves into the implications of Riverview Dairy’s establishment of two mega-dairies in North Dakota, marking a significant shift in dairy farmingDairy operations are moving west of the Mississippi River, typically to sparsely populated regions. Riverview’s largest new farm will house 25,000 cows and produce 300,000 gallons of milk daily, converting manure into sellable natural gas. This highlights how large-scale operations are transforming the industry. Small farmers face challenges, needing to innovate, diversify products, adopt sustainable practices, and consider cooperatives to survive amidst potential market saturation and lower milk prices. Adopting new technologies like robotics and AI health monitoring could be critical to their survival.

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Australian Dairy Industry Worries Over Fonterra’s Local Business Sale: Market Consolidation Concerns Emerge

Find out why Fonterra’s sale of its Australian dairy business is raising worries about market consolidation. What will this mean for local farmers and consumers? Read more.

Fonterra’s decision to sell its consumer brands is a significant event that is reshaping the global dairy industry, including the Australian sector. This strategic shift, which prioritizes B2B and ingredients despite the consumer division’s financial success, has raised concerns among local stakeholders about market concentration and its potential impact on Australian dairy producers and consumer choices.

As the Business Council of Cooperatives and Mutuals (BCCM) stated: 

“The announcement by Fonterra that it intends to sell its Australian dairy processing assets is yet another blow to dairy farmers and a reminder about the precarious nature of our food security when staples like milk are passed around like commodities.”

Key concerns include: 

  • Market consolidation reduces competition and local control.
  • Pressure on farm gate prices, possibly forcing farmers out of the market.
  • The risk of a supermarket duopoly, limiting consumer choices and raising prices.

The issues at hand underscore the pressing need to promptly reassess market dynamics. This is crucial to secure the long-term sustainability of Australia’s dairy industry, a vital part of our nation’s economy and food security.

Fonterra’s Strategic Pivot: Divesting Consumer Brands to Strengthen B2B and Ingredients Focus

One of the major players in world dairy, Fonterra, is changing its approach to concentrate on its B2B and ingredients division. Selling well-known consumer brands, including Anlene, Anchor, and Fernleaf—despite their gross earnings in FY2023 of NZ$781 million (US$481.9 million—this move entails selling these companies notwithstanding Revenue sources indicates another tale, though the consumer sector accounted barely 7% (NZ$3.3 billion / US$2.4 billion). The food service industry brought 13% of total income (NZ$3.9 billion / US$2.4 billion). Comprising 80% of revenue and producing NZ$2.6 billion (US$1.6 billion) in gross profits, the ingredients industry dominated. Aiming to simplify processes, emphasize core competencies, and react to consumer and food service asset interests, this strategy change is meant to streamline operations.

Financial Data Illuminates Fonterra’s Strategic Shift 

Fonterra’s latest financial results support their strategy change. From a modest 7% of sales, the consumer division brought in NZ$781mn (US$481.9mn) in gross profits in FY2023. With nearly 13% of sales (NZ$3.9 billion/US$2.4 billion), the food service industry produced NZ$749mn (US$462.2mn) in gross profits. With 80% of total sales (NZ$17.4bn/US$10.7bn), the ingredients business led with gross earnings of NZ$2.6 billion (US$1.6 billion).

Substantial consumer and food service revenues nonetheless indicate Fonterra’s main strength—that of ingredients. Fonterra wants to improve long-term value by concentrating on its best-performing channels—ingredients and food service—involving Unwanted interest in areas of its company also drives the choice; this is a perfect moment for disposal to reallocate funds and improve its principal activities.

Fonterra’s Comprehensive Global Strategy: Streamlining Operations with a Focus on B2B and Ingredients

With its intentions to leave the Australian market and divestiture of consumer brands in Sri Lanka, Fonterra’s new approach centers on its B2B and ingredients business and CEO Miles Hurrell pointed out shedding companies including Anlene, Anchor, and Fernleaf, “While these are great businesses with recent strengthening in performance and potential for more, ownership of these businesses is not required to fulfill Fonterra’s core function of collecting, processing and selling milk.”

Hurrell clarified the strategy turnaround: “More value would come from focusing our Ingredients and food service channels and freeing money in our Consumer and related companies. Disposing these businesses would enable a more straightforward, better-performing Co-op with an eye on our core Ingredients and food service sector. We have also had an unwanted interest in several of these companies; hence, this is a good moment to review their ownership.

Aiming to strengthen its presence in the worldwide market, where B2B and ingredient categories offer more profitable prospects, the divestments in Sri Lanka and Australia are part of a bigger plan to maximize operational efficiency and capital allocation.

Concerns Over Consolidation: Potential Ripple Effects on the Australian Dairy Market 

The local dairy industry is alert about how Fonterra’s divestiture may affect the Australian market. Rising market consolidation especially worries the Business Council of Cooperatives and Mutuals (BCCM). They contend this would concentrate dairy asset ownership within a small number of powerful companies, therefore lowering competition.

BCCM cautions that this consolidation might harm dairy producers by lowering their bargaining strength at the farm gate. When market power centers on one entity, farmers may be pressured to accept reduced milk prices to meet shareholder profits. This might threaten smaller, independent farms, compromising the industry’s variety and resilience.

Customers might also experience this. Price increases at retail establishments run the danger given that fewer businesses manage processing and distribution. BCCM observes that this could result in fewer options and more expensive essential dairy products.

The possible loss of local authority over dairy assets raises even another issue. Emphasizing more profitability than community and farmer wellbeing, BCCM notes that foreign and corporate ownership may eclipse local interests.

BCCM supports increased primary producer participation in the value chain to offset these risks. They see cooperatives as essential for giving dairy farmers the negotiating strength they need to flourish in Australia’s mostly deregulated and export-oriented market. Supporting cooperatives helps the industry protect its stability and sustainability against the forces of market concentration.

Potential Consequences of Fonterra’s Australian Asset Divestment: Market Concentration and Its Ripple Effects 

Fonterra’s choice to sell its Australian consumer businesses begs questions about further market concentration. Like the supermarket duopoly in New Zealand, this action may result in a few powerful companies controlling the market. Such consolidation may marginalize independent, small dairy farms and processors, lowering their market impact.

Two big supermarket chains’ dominance in New Zealand caused an imbalance in negotiating strength, which drove down farm gate pricing and compressed profits for local dairy producers. Should this happen in Australia, some farmers may be driven out of the sector by cost constraints and declining profitability. Therefore, Farmers and customers would be affected by this, influencing product diversity, price, and market rivalry.

The regulatory clearance for Coles’ purchase of Australian Saputo processing facilities points toward retail ownership over processing becoming the norm. Should this continue, milk manufacturing may merge even more into retail chains, emphasizing cost over innovation or quality, which would reduce market dynamism.

Encouraging the adoption of robust cooperative models is not just a solution but a beacon of hope in the face of these challenges. These models have the potential to empower Australian dairy producers, increasing their share in the value chain and enhancing their negotiating strength. By promoting a cooperative approach, we can help the sector maintain the diversity and resilience of the Australian dairy market and mitigate the potential negative consequences of market concentration.

Future Pathways: Strengthening Dairy’s Horizon Amid Consolidation Concerns 

The choices Australia’s dairy sector must make now will determine its direction. Thanks to increased consolidation, larger companies might be able to dominate, perhaps pushing out smaller farms and lowering competition. However, consumer choices and farm gate pricing may suffer from this change.

Still, a different route highlights how cooperatives strengthen leading producers. The collective negotiating strength provided by cooperatives guarantees a fairer market, more balanced pricing, and equitable profit distribution. Participating in the whole value chain—from manufacturing to distribution—improves farmers’ economic resilience and negotiation power against more powerful companies.

Moreover, cooperatives may promote sustainable agricultural methods that match environmental and financial objectives. Establishing a robust cooperative movement within the Australian dairy industry guarantees food security, variety, and quality for customers, as well as stability and protection of livelihoods.

Using co-ops and including primary producers in the value chain will determine the industry’s destiny. These tactics may let the dairy industry negotiate consolidation difficulties and emerge stronger and fairer globally.

The Bottom Line

Fonterra’s calculated choice to sell their consumer brands and concentrate on B2B and ingredients represents a significant change. This action seeks to simplify basic procedures even if consumer sector financial performance is excellent. However, the Australian dairy sector has expressed worries about market concentration. Essential concerns include:

  • Possible consumer price increases.
  • Effects on nearby dairy farms.
  • The possibility of a retail duopoly pressuring farm gate pricing.

Examining this divestiture process closely is vital if we safeguard industry stability and advance cooperative models that empower farmers in the value chain. Maintaining the interests of every Australian dairy industry stakeholder depends on a balanced, competitive market.

Key Takeaways:

The recent strategic pivot by Fonterra, which involves divesting its consumer brands to concentrate on its B2B and ingredients business, has raised significant concerns within the Australian dairy sector. The decision, influenced by various financial metrics, is seen as both a commercially sound move for Fonterra and a potential risk for market consolidation in Australia. 

  • Fonterra plans to divest its consumer brands such as Anlene, Anchor, and Fernleaf globally.
  • The decision follows a strategy shift to focus on B2B and ingredients business despite strong performance in the consumer sector.
  • FY2023 data reveals that the consumer business generated NZ$781mn in gross profits, surpassing the foodservice business.
  • The ingredients business remains the largest revenue contributor, making up 80% of total revenue.
  • Fonterra’s exit from the Australian market includes divestment of its consumer, foodservice, and ingredients businesses.
  • Concerns have emerged within the local dairy sector regarding market concentration and its impact on dairy farmers and consumers.
  • Australia’s Business Council of Co-operatives and Mutuals (BCCM) highlights the potential for increased market dominance by large business interests and its implications on farm gate prices.
  • There is a growing sentiment that co-operatives may be a key solution to maintaining bargaining power for dairy farmers.

Summary:

Fonterra is reshaping the global dairy industry, including the Australian sector, by focusing on its B2B and ingredients division. This strategic shift has raised concerns about market concentration, potential impact on Australian dairy producers, and consumer choices. The Business Council of Cooperatives and Mutuals (BCCM) criticized the announcement, stating that market consolidation reduces competition, local control, pressures farm gate prices, and risks a supermarket duopoly. Fonterra’s financial results show that the consumer division generated only 7% of total income in FY2023. The ingredients industry dominated, accounting for 80% of revenue and $2.6 billion in gross profits. The Australian dairy industry is concerned about Fonterra’s divestiture, which could lead to market consolidation and lower competition. BCCM supports increased primary producer participation in the value chain.

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EU Dairy Decline: 2024 Milk Production Forecasted to Drop 0.3% Amid Lower Cow Numbers and Rising Costs

Discover why EU milk production is forecasted to drop 0.3% in 2024. How will declining cow numbers and rising costs impact the dairy industry? Read more to find out.

EU Flag waving against blue Sky

European Union milk production is set to face another challenging year, continuing its downward trend into 2024. Several factors contribute to this decline, with a predicted 0.3% drop in cow milk production. As the number of dairy cows falls below 20 million for the first time, it’s evident that consistent growth in cow productivity won’t fully offset the shrinking cow inventories. Rising production costs and lower farm-gate milk prices further exacerbate the situation, making milk production less profitable for EU farmers.  Join us as we delve further; these elements paint a comprehensive picture of the EU’s milk production landscape in 2024.

EU Dairy Herds Dwindling: First-Ever Drop Below 20 Million Cows Marks 2024’s Start

CountryDairy Cows in Milk (January 2024)Expected Change in Dairy Farmer Numbers (2024)Milk Production (Forecast for 2024)
Germany4.0 millionDecreaseStable
France3.5 millionDecreaseSlight Decrease
Poland2.8 millionDecreaseSlight Increase
Belgium0.6 millionDecreaseSlight Decrease
Netherlands1.6 millionMinimal ChangeStable
Ireland1.5 millionMinimal ChangeDecrease

At the start of 2024, the EU saw a significant change in its dairy industry: dairy cows dropped below 20 million, hitting 19.7 million. This marks a historic low and indicates a continuing downward trend in cow numbers, which is expected to persist throughout the year.

The Double-Edged Sword of Rising Cow Productivity Amid Shrinking Herds

Even though each cow produces more milk, more is needed to make up for the overall decline in cow numbers across the EU. Simply put, fewer cows mean less milk overall. This imbalance contributes directly to the forecasted 0.3% drop in milk production for 2024. Despite individual productivity gains, the milk output is declining due to the shrinking herds.

A Temporary Respite: Early 2024 Sees Milk Deliveries Surge Before Expected Decline

Time PeriodMilk Deliveries (MMT)Change (% Year-on-Year)Average Farm Gate Milk Price (EUR/100kg)

January-February 2023 24.0 – 40.86

January-February 2024 24.4 1.7% 35.76

Full Year 2023 145.24 -0.03% 39.50

Full Year 2024 (Forecast) 144.8 -0.3% 37.00

Early 2024 saw a 1.7% rise in cow’s milk deliveries compared to the same period in 2023. However, this boost is short-lived. Many farmers are expected to sell their cows or exit milk production later in the year, leading to a decline in deliveries.

The Multifaceted Challenges Shaping Europe’s Dairy Economy

The economic landscape for dairy farmers is becoming more challenging. A key issue is the steady drop in farm-gate milk prices since early 2023, significantly affecting profitability. 

Production CostsHigh production costs for energy, fertilizers, and labor persist, squeezing farmers’ margins despite some recent reductions. 

Geographical Impact: In Germany, France, Poland, and Belgium, smaller and less efficient farms are hardest hit. The pressure from lower milk prices and high input costs drives many to reduce herd sizes or stop milk production. 

Environmental RegulationsEnvironmental rules in the Netherlands and Ireland seek to cut nitrogen emissions, which are expected to negatively affect herd numbers and production costs in the long term. 

Overall, larger farms may better cope, but the trend toward consolidation continues due to falling profits and rising costs.

Environmental Regulations Cast Long Shadows Over EU Dairy Farming

Environmental regulations are threatening Europe’s dairy farming. New measures to curb nitrogen emissions are adding pressure on struggling farmers in the Netherlands and Ireland. 

For example, the Netherlands aims to cut nitrogen emissions by 50% by 2030, including reducing the number of dairy cows and relocating farms. Ireland’s targets similarly demand stricter manure management and sustainable farming practices, both costly and complex. 

These regulations, combined with high production costs and declining milk prices, make it challenging for smaller farms to stay in business. Many are choosing to exit the market rather than invest in expensive upgrades. 

As a result, smaller farms are shutting down, and larger farms need help to maintain their herd sizes. Although these regulations are essential for a greener future, they add another layer of complexity to the EU dairy industry’s challenges.

Generation Renewal Crisis Accelerates Market Consolidation in EU Dairy Sector

A growing trend in market consolidation and farm closures is evident within the EU dairy sector. One key issue here is the challenge of generation renewal. Younger generations are increasingly hesitant to continue milk production due to the heavy workload and tight profit margins. Elevated production costs and decreasing farm-gate milk prices also make it challenging for smaller, less efficient farms to stay in business. 

However, larger and more professional farms show notable resilience. They often have better infrastructure, access to advanced technology, and excellent financial stability, allowing them to maintain herd numbers despite broader declines. By leveraging economies of scale and more efficient practices, these farms can better absorb economic shocks and comply with environmental regulations. 

This disparity between small and large farms is accelerating market consolidation. As smaller farms exit, larger ones are absorbing their market share. While the total number of dairy farms is decreasing, those that remain are becoming more advanced and better equipped to tackle future challenges in the dairy economy.

Record-High Milk Prices in 2022 Spark Production Surge, Only to Shatter in 2023-2024

The surge in milk deliveries in 2022 and 2023 stemmed from record-high EU farm gate milk prices in 2022, peaking in December. These prices incentivized farmers to boost production despite rising costs, supporting the dairy industry at that time. 

However, these prices began to fall from May 2023 through March 2024, squeezing farmers financially. Although still above the 5-year average, the decline sharply contrasted with 2022’s profitability. With global milk production up and dairy demand fluctuating, EU farmers adjusted their production levels, paving the way for a predicted drop in milk deliveries in 2024.

The Ripple Effect: How Global Market Dynamics Shape EU Milk Prices 

Global market dynamics significantly impact EU milk prices. The world’s largest dairy exporters, including Australia, the United States, the UK, and New Zealand, have increased production, leading to an oversupply that pressures prices downward. This makes it challenging for EU producers to maintain their margins. 

Simultaneously, demand from major importers like China and some Middle Eastern countries is declining. Various factors, including trade tensions and shifting consumer preferences, contribute to this weaker demand. 

This supply-demand imbalance has reduced farm gate milk prices in the EU. While European prices remain higher than those of international competitors, more than this advantage is needed to counteract the rising production costs and reduce global demand. The EU dairy industry must navigate these challenges to stay competitive and sustainable.

Price Disparities in Global Dairy: EU’s Costly Position Against New Zealand and US Competitors

When you look at milk prices, you’ll notice that the EU’s are much higher than those of other major exporters like New Zealand and the US. In February 2024, the EU’s milk price hit EUR 46.42 per 100 kilograms. That’s 27% more than New Zealand’s and 18% more than the US. 

These higher prices mean EU dairy products cost more to produce and sell, making it challenging for EU producers to compete globally. Higher costs can squeeze farmers further, especially with high input costs and changing demand.

Weather Woes: Uneven Conditions Across Europe Impact Dairy Farming

In 2024, weather was vital in shaping feed and pasture conditions across Europe. Spring brought warm temperatures and balanced rainfall, leading to good green feed availability. However, the northwest, especially Ireland, faced challenges. Ireland’s dairy farming, which relies on cattle grazing for up to nine months, has struggled with wet soils and recent rains. These conditions hindered field access and grassland regrowth, severely impacting milk production.

The Bottom Line

In summary, EU milk deliveries are forecast to dip to 144.8 million metric tons (MMT) in 2024. Unfavorable weather and high input costs for energy and fertilizers are straining farmer margins. Despite brief boosts in productivity, these challenges will likely persist throughout the year.

Key Takeaways:

  • Decline in Cow Numbers: Cow numbers fell below 20 million for the first time in early 2024, indicating a continuing downward trend.
  • Productivity vs. Herd Size: Increased productivity per cow is not enough to counterbalance the overall decrease in herd sizes.
  • Initial Surge in Milk Deliveries: Early 2024 saw a 1.7% increase in milk deliveries, but this is expected to decline as more farmers exit the industry.
  • Decreasing Profitability: Farm-gate milk prices have been falling since early 2023, alongside high production costs, squeezing farmers’ profit margins.
  • Impact of Environmental Regulations: Government plans to cut nitrogen emissions in countries like the Netherlands and Ireland are affecting herd numbers.
  • Market Consolidation: The industry is seeing greater consolidation, with smaller, less efficient farms closing and bigger farms maintaining their herd sizes.
  • Weather Complications: Varying weather conditions across Europe in 2024 have impacted green feed availability and pasture conditions, particularly in Ireland.

Summary: The European Union’s milk production is experiencing a significant decline, with a predicted 0.3% drop in cow milk production. This decline is attributed to rising production costs and lower farm-gate milk prices. The number of dairy cows has fallen below 20 million for the first time, making milk production less profitable for EU farmers. In early 2024, there was a 1.7% rise in cow milk deliveries compared to the same period in 2023, but this was short-lived as many farmers were expected to sell their cows or exit milk production later in the year. The economic landscape for dairy farmers is becoming more challenging, with a steady drop in farm-gate milk prices since early 2023 significantly affecting profitability. High production costs for energy, fertilizers, and labor persist, squeezing farmers’ margins despite some recent reductions. The EU dairy sector is experiencing a growing trend of market consolidation and farm closures, with younger generations increasingly hesitant to continue milk production due to heavy workloads and tight profit margins.

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