The Year of Consolidation and Tariffs: How 2025 Reshaped the Global Dairy Industry

Mergers and acquisitions in 2025

Fonterra agreed to sell its consumer business (brands Anchor, Mainland, and others) to Lactalis; the transaction is undergoing final approval by shareholders and regulators, with completion expected in the first half of 2026.

Fonterra was seeking a way to free up capital for payments to farmers and to focus on the ingredients segment of the business (high-value ingredients). The sale of consumer assets is a way to generate a rapid inflow of funds. At the same time, Lactalis is seeking to strengthen its presence in the Southern Hemisphere and in Asian markets by acquiring local distribution networks and well-known brands.

The consequences of this deal include vertical concentration: Lactalis gains control over distribution and brands, providing leverage over raw milk procurement and pricing policy in the region. For farmers, this may mean new contracts, but also increased bargaining power on the part of the processor.

After the transaction is completed, a revision of milk supply and logistics contracts is possible; competitors will attempt to acquire niche brands and logistics assets in order to compete. Regulators (including Australian authorities) are already closely examining the implications for local competition.

Members of FrieslandCampina and Milcobel approved the merger; the transaction is being formalized by January 1, 2026, following regulatory approval.

Cooperatives are facing rising costs (energy, logistics) and competition for ingredients. The merger provides economies of scale and strengthens positioning in the cheese and ingredients markets.

The key consequences of the deal include centralization of R&D and logistics, as well as a possible restructuring of the plant network (closure of less efficient lines, focus on key production centers). For farmers, this means stability of procurement in exchange for stricter contract terms.

As the EU simultaneously faces trade shocks (see Chinese tariffs), it is advantageous for cooperatives to consolidate capacities — further mergers in Europe are expected in 2026.

In addition to the most high-profile deals of the year, 2025 became a period of systemic, “quiet” consolidation that covered almost the entire global dairy market — fr om Europe and North America to China and the Middle East. Excluding individual mega-deals, industry reports fr om Global Dairy Top 20 record at least two dozen significant transformations, including acquisitions, cooperative mergers, asset sales, and the redistribution of production chains.

In 2025, several global players consistently reinforced their positions:

• Lactalis continued its strategy of aggressive expansion through the acquisition of brands and processing assets in various regions, strengthening control over the consumer segment and logistics.

• Nestlé continued divesting low-margin dairy assets while strengthening its ingredients and functional segments (nutrition, medical, protein products).

• Dairy Farmers of America focused on vertical integration within the United States — controlling processing, contract supplies, and optimizing the plant network.

• Danone strengthened its focus on specialized segments (infant nutrition, functional dairy products), reducing traditional “commodity milk.”

• Yili continued expanding beyond China through investments, equity stakes, and technological partnerships, reducing dependence on the domestic market.

• Arla Foods and FrieslandCampina followed a path of scaling up the cooperative model by combining capacities, R&D, and procurement.

The logic behind these deals

Virtually all major deals in 2025 were aimed at reducing dependence on raw milk and basic products. Companies systematically strengthened:

• ingredients (whey protein, concentrates, isolates),

• products with functional value (nutrition, protein+, lactose-free),

• premium and branded categories.
  

The reason is simple: commodity milk no longer provides sustainable margins. Even with stable processing volumes, companies cannot rely on price cycles — therefore, they acquire assets with higher added value and lower volatility.

The second key objective of M&A was control over the chain from farm to shelf.
The year 2025 clearly demonstrated that trade barriers, logistics disruptions, and tariffs can dismantle established export routes within months.

By acquiring processing, logistics, brands, and contracts with farmers, companies:

• reduce dependence on the spot market for raw materials;

• lock in volumes and prices;

• reallocate flows between markets more quickly.
  

This is particularly evident among cooperatives and large processors in the United States and Europe, wh ere long-term contracts have become the norm rather than the exception.

In a number of deals and expansions in 2025, the key assets were not brands, but technologies:

• highly automated plants,

• energy-efficient lines,

• new packaging formats (extended shelf life, UHT, single-serve).
  

Companies acquired capacities that allow them to:

• reduce costs per unit of output;

• flexibly switch between categories;

• comply with ESG and regulatory requirements.

Plant openings and expansions — wh ere investments were made in 2025

Walmart opened its second in-house dairy plant in the United States (Valdosta), investing $350 million; the plant will process milk for private-label brands (Great Value, Member’s Mark).

Retailers are accelerating vertical integration in order to control supply and private-label pricing amid raw material volatility and trade risks. Walmart aims to ensure the availability of affordably priced milk.

For local farmers, this means stable demand and contracts, but also potential price compression fr om competitors; for retailers, it increases control over production costs.

Walmart is planning additional plants (references to a third in Texas in 2026); other large retailers and retail manufacturers may follow suit.

Saputo opened a large cold-storage and distribution facility in Caledonia (311,000 sq ft) in 2025/2026, creating approximately 160 jobs; at the same time, the company is closing a number of small and outdated plants in the United States as part of consolidation.

This is linked to redistribution — shifting production to more efficient centers and hub-based distribution points in response to the need for logistics centralization amid a decline in the number of small processors.

Jobs are created in new hubs but disappear in towns wh ere plants are closed. This is a typical “network reorganization” aimed at reducing costs and increasing delivery speed.

Saputo’s network will become increasingly hub-based — fewer small plants and growing capacities in key regions.

New production and technological facilities (ingredients, feed additives)

In 2025, the opening and planning of specialized facilities stood out — for example, the Adisseo MetaSmart® facility and investments in the production of feed additives and methionine (to increase cow productivity).

Growing interest in improving productivity (minimizing feed costs and increasing protein yield) is driving investments in premixes and specialized ingredients.

Higher farm-level returns (improved milk components) can partially offset price declines, but require capital investment and access to credit.

Closures, relocations, and capacity reductions — key examples in 2025

Leprino (the world’s largest mozzarella producer) confirmed plans in 2025–2026 to close an old plant in California (Lemoore/Tracy) following the launch of a new high-capacity plant in Lubbock, Texas; this will affect hundreds of employees.

Older sites require capital investment; it is economically more efficient to centralize production in new automated plants with lower costs and better logistics.

This led to rising unemployment in local communities while simultaneously increasing productivity and reducing costs for the company. This is a typical supply-chain optimization: investment in new capacity results in the closure of outdated facilities.

Cheese production in the United States will continue to centralize in regions with more favorable tax and energy policies and access to raw materials; further closures are likely among outdated facilities.

In 2024–2025, Saputo announced the closure and consolidation of six U.S. facilities with production shifting to larger centers; in Australia, King Island Dairy was put up for sale or underwent a change of ownership after a period of instability — some local brands underwent restructuring.

The reason was the need to optimize the production network for modern volumes and improve efficiency (reducing costs per unit). Unprofitable small plants are the first candidates for closure.

Local communities are now suffering job losses; national authorities sometimes intervene (searching for buyers, subsidizing retraining). For the industry, this means increased centralization and greater dependence on large hubs.

Arla proposed investing €107.7 million in the creation of a UHT center in Lockerbie, alongside plans for the possible closure of the Settle plant (North Yorkshire) — workers protested and engaged in negotiations over alternatives.

This decision was driven by the centralization of UHT production in a single modernized hub, which allows cost reductions and improved competitiveness of products in external markets.

This resulted in local job losses, but increased production efficiency and political pressure on Arla fr om trade unions and local authorities.

Arla’s examples are typical for Europe: balanced investments in technologically advanced centers combined with reductions in less productive locations. This trend will continue under margin pressure.

Geographic breakdown: wh ere plants are opening, wh ere they are closing, and why

United States: growth of investment in large integrated hubs (Walmart Valdosta, Saputo Caledonia) alongside simultaneous closures of outdated plants (Saputo, Leprino relocations). Reasons include economies of scale, access to markets and labor, and logistics.

Europe: cooperative mergers (FrieslandCampina–Milcobel), investments in centers of competence (UHT), closures of local plants (Arla Settle). Reasons include rising costs, the need for R&D and standardization, and the effects of trade shocks.

Oceania/Asia: major deals (Fonterra), restructuring of exports, local sales and purchases of plants, aimed at market retention and investment in ingredients.

Protectionism and trade barriers — facts, causes, consequences, and the link to “Trump’s tariff war”

On December 22–23, 2025, China introduced provisional anti-subsidy tariffs on certain dairy products from the EU, ranging from 21.9% to 42.7% (averaging around 30%), citing harm to domestic producers.

Why this happened:
Political retaliation: this was part of a broader escalation between the EU and China following disputes over EV subsidies and EU tariffs on Chinese electric vehicles — retaliatory anti-subsidy investigations and tariffs became tools of diplomatic pressure.
Economic motives: China sought to protect domestic processing and raw-material sectors from an influx of cheap imports, particularly in the cheese and fresh dairy segments.

What this will lead to:
For EU exporters: a sharp deterioration in competitiveness in a key market — cheese and fresh dairy producers will lose margins and sales volumes in China; supplies may be redirected to other regions (Middle East, Africa, Latin America).
For the global market: short-term disruptions in trade flows, growth of inventories in Europe (increased domestic supply), and downward pressure on raw material prices — which, in turn, will reinforce the wave of consolidation and sales optimization.

In the next 6–12 months, a significant reorientation of export routes is expected. Some companies may benefit from “tariff easing” in the final version of the investigation (as has happened in other cases), but overall the focus will have to be on market diversification and price adjustments.

In 2018–2019, the administration of Donald Trump imposed broad tariffs and faced retaliatory measures (including Chinese tariffs on agricultural products), which led to large-scale losses in U.S. agricultural exports — a lesson the industry now uses as a case study. Analysts point to the risk of “Tariff War 2.0” and scenarios in which new tariff restrictions significantly hit dairy exports. U.S. policy and past trade conflicts have shown that trade restrictions rapidly change sales channels and lead to long-term losses of market share. Companies and countries remember these precedents and take them into account in risk management.

In January 2025, the USDA opened the standard enrollment period for DMC (Jan 29–Mar 31), and later several amendments to federal milk marketing orders (FMMO) came into force — changes to Class I and pricing formulas implemented in 2025 (Final Rule effective June 1, 2025, and additional changes effective December 1, 2025).

This occurred due to the need to eliminate structural distortions in price distribution among milk classes and to increase transparency of price signals for processors and farmers. Lessons accumulated between 2018 and 2024 showed that pricing formulas require adjustment to modern commodity flows.

For farmers, DMC remains a tool for mitigating short-term risk. However, DMC does not compensate for systemic shortcomings (for example, prolonged price declines amid high costs).
For processors, changes to FMMO alter the distribution of payments and may lead to a redistribution of processing activity toward regions with more favorable pricing geography.

Production and prices: why 2025 became a year of “flat economics” for milk

In 2025, the dairy industry entered a phase increasingly described by analysts as price compression without cost compensation. Formally, some cost components began to decline, but in reality the economics of production remained vulnerable — especially at the farm level.

According to data from the University of Illinois / FarmDoc published in December 2025, feed costs per 100 pounds of milk did indeed decline compared to 2024. The main reason was the cheaper price of protein components in feed and stabilization of grain markets after sharp fluctuations in previous years. However, this positive factor proved insufficient to restore production profitability.

Why lower feed costs did not save farmers

FarmDoc highlights a key paradox of 2025:
even with lower feed costs, total economic costs of milk production in many regions still exceeded the market price of milk.

Under FarmDoc’s baseline scenario:

• the average milk price did not cover full economic costs;

• the margin deficit was estimated at $3–4 per 100 pounds of milk under “average” market conditions.
  

In other words, farmers were selling milk below the level of sustainable profitability — not catastrophically, but systematically. This was not a collapse crisis, but prolonged pressure under which farms continued operating while losing investment capacity.

What was happening at the level of processors and corporations

Against this backdrop, Global Dairy Top 20 reports and industry reviews showed a seemingly opposite picture:
the largest dairy companies increased revenues in 2025.

Growth was driven not by higher milk prices as such, but by:

• mergers and acquisitions (M&A),

• expansion of portfolios with high value-added products (cheeses, ingredients, proteins),

• geographic diversification of sales.
  

However, there was an important caveat: revenue growth did not mean higher profitability. Pressure from costs, logistics, and trade restrictions led even large players to record compressed operating margins. In effect, 2025 became a year of turnover, not profit.

The mechanics of pressure: what exactly broke the price balance

The dairy economy in 2025 was squeezed by several factors acting simultaneously.

First, there was a structural oversupply in certain regions, primarily in Europe. After pandemic restrictions were lifted and supply chains stabilized, production recovered faster than export channels. As a result, excess supply of raw materials and basic processed products formed within the EU internal market.

Second, the decline in feed costs was uneven. Yes, average feed costs fell, but:

• the effect varied by region;

• farms with lower productivity or high debt burdens were unable to convert lower feed prices into real economic improvement.
  

Third, “hidden” costs increased. Logistics, energy, cooling, processing, and packaging did not decline in sync with feed costs. For processors, these became the main sources of pressure, especially amid rising financing costs.

Fourth, trade barriers played a role. Restrictions and tariffs (including Chinese measures against EU dairy products) disrupted export flows. Products oriented toward external markets remained within regions, increasing price pressure on domestic markets and reducing demand for raw materials.

Consequences: how the industry structure is changing

The economic result of this combination was predictable, but large in scale.

For farmers:

• margins remain compressed even with stable production volumes;

• the shift to long-term contracts with processors is accelerating;

• small and medium farms are either consolidating or exiting the market.
  

For processors:

• the share of vertically integrated companies — from raw materials to shelf — is increasing;
  

• consolidation of capacities is intensifying;
  

• investments are shifting toward high value-added products rather than basic milk.
  

In effect, 2025 became an acceleration point for structural changes that had been maturing for several years: the market is being “cleansed” not through a sharp collapse, but through the gradual erosion of weaker links.

Forecast for 2026: a scenario of “prolonged pressure”

If trade tensions and tariff restrictions persist for more than 6–9 months, analysts expect the following chain of effects:

• lower prices for export-oriented products in the EU;
  

• growth of domestic inventories of milk and semi-finished products;
  

• additional pressure on processors;
  

• the emergence of a so-called “closure curve” — the gradual shutdown of the least efficient plants.
  
  

This is not a scenario of an abrupt crisis, but a scenario of managed contraction, under which the industry becomes more concentrated, more capital-intensive, and less accessible to small players.