The European Commission’s latest short-term outlook for the EU dairy sector paints a picture of stability on the domestic front but rising vulnerabilities in the global marketplace. Milk deliveries in the EU are projected to increase marginally by 0.15% in 2025, even as dairy herd numbers continue to shrink (-1%). This resilience is driven by improved yields (+1.2%) and richer milk composition, with fat and protein content climbing by 0.2% and 0.1% respectively.
Raw Milk Prices Remain Elevated
EU raw milk prices continue to hover well above the 5-year average, at EUR 53.3/100 kg as of May 2025 (28% above the historical mean). Stable demand from retail and food processing sectors, coupled with tight milk fat supply, is maintaining this price momentum. For producers, elevated farmgate prices help protect margins in a period of stubbornly high input costs. However, this price environment is increasingly eroding EU competitiveness on the global dairy market, especially against exporters like New Zealand and the US, where production costs remain lower.
Export Growth 2024 vs 2025
Export performance over the past two years highlights the EU’s mounting competitive pressures.
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In 2024, EU dairy exports fell by 1% (milk equivalent), mainly driven by weak SMP and WMP demand and reduced butter shipments. Cheese exports, however, performed strongly and helped offset steeper declines in other categories.
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In 2025, exports are forecast to remain flat (-0.2%) overall, with significant disparities by product: SMP exports down 2%, WMP down 5%, and butter down 2%, while cheese exports are essentially stable (+0.1%) and whey exports grow by 2%.
This limited growth reflects two core factors: (1) high EU price levels relative to competitors, and (2) continued soft demand from large import markets such as China and Algeria.
Cheese and Whey Lead Production Gains
EU processors are channelling more milk solids into cheese and whey, which are projected to increase by 0.7% year-on-year. Cheese exports, however, will likely plateau (+0.1%), squeezed by global competition and demand uncertainty in key importing regions such as the US and China. Whey exports are expected to rise by 2%, but demand growth remains uneven.
Meanwhile, butter production is forecast to stay flat (+0.3%), with exports declining 2% as high EU prices limit competitiveness. Powdered milk products continue to struggle: skimmed milk powder (SMP) exports are projected to fall 2%. In comparison, whole milk powder (WMP) exports could drop as much as 5% due to weak demand in China and Algeria, combined with aggressive competition from Oceania.
Regional Dynamics Add Complexity
Milk deliveries are expected to contract in Western European powerhouses Germany, France, the Netherlands, and Belgium, primarily due to ongoing herd reductions and animal health challenges. In contrast, Poland and Ireland are forecast to record production growth, bolstered by improved yields and favourable grassland conditions.
Global Market Implications
The EU is a critical player in the global dairy market, particularly in cheese, butter, and milk powders. Any reduction in its export volumes can have ripple effects. The projected decline in SMP and WMP exports could tighten global availability, potentially supporting prices in the second half of 2025. However, New Zealand and the US are well-positioned to capture the resulting market share, especially in Asia and the Middle East.
The stability in EU butter output, despite reduced exports, could also influence global butter prices, which have remained volatile in recent years. Should EU products remain less competitive, markets like India and Southeast Asia could turn increasingly to Oceania for supply.
Expert Assessment:
“While the EU’s internal market remains relatively robust, its export competitiveness is under pressure. If current price disparities persist, global buyers may diversify away from European suppliers, shifting the centre of gravity in dairy trade flows,” noted Prashant Tripathi. “This would not only reshape global price dynamics but could further entrench the competitive advantages of exporters like New Zealand.”
Outlook: What to Expect Beyond 2025
Looking ahead to late 2025 and into 2026, the EU dairy market will likely face a continued balancing act:
- Stable but slow growth in milk deliveries is expected as yield improvements counteract shrinking herds.
- Cheese and whey will remain the strongest performing product categories, supported by robust domestic demand and niche export opportunities.
- Butter and milk powders will continue to face headwinds from intense global competition and high EU price levels, unless energy and input costs soften significantly.
- If milk prices remain elevated, there is a risk that global importers will increasingly pivot to suppliers like New Zealand, the US, and even South American producers.
On the positive side, the EU’s strength in value-added dairy segments could help shield it from commoditised price wars. Speciality cheeses, functional whey ingredients, and fortified dairy products will likely be the growth drivers for exporters.
