European Dairy Supply Chains Face 5% Decline Over the Next Decade

The European dairy industry is projected to face a significant contraction in milk supply, with a predicted 5% decline over the next ten years. This forecast, provided by Tom Booijink, a senior dairy specialist at Rabobank, highlights the potential disruptions for dairy supply chains across the European Union.

Several factors contribute to this expected decrease in milk production. Regulatory pressures at both EU and national levels, focusing on environmental and animal welfare concerns, have increased compliance costs for farmers. These include measures such as buyout programs and additional taxation. Furthermore, demographic shifts, characterized by an aging farming population and rural depopulation, are exacerbating labor shortages in the agricultural sector.

Climate change further complicates the situation, as global warming imposes additional stress on dairy production systems, reducing overall competitiveness. These dynamics collectively lead to a smaller milk pool available for processing within the region.

Dairy companies must adapt strategically to cope with the shrinking milk supply. Strategies include corporate activities such as mergers and acquisitions to secure supply, and refined milk procurement strategies that offer better conditions for farmers. These could involve transparent milk pricing, performance-based bonuses, and lower barriers for cooperative membership.

Geographic diversification is another suggested approach, with companies encouraged to expand their asset base into EU regions with growth potential or reduce their dependence on Europe by sourcing dairy raw materials from overseas facilities.

While the local milk pools diminish, early action to secure supply and optimize milk utilization will better position companies to maintain production capacity and meet customer demand, according to the report.