The global milk production costs have seen a significant increase over the past five years, with higher feed prices being a major contributing factor, according to a recent report. From 2019 to 2024, the total cost of milk production rose by an average of 14% across the world’s top eight dairy-producing regions, including California, the Upper Midwest, Argentina, Australia, China, Ireland, New Zealand, and the Netherlands, as reported by RaboResearch in a January survey.
The report highlighted that more than 70% of this increase occurred since 2021 and was attributed to higher feed and fertilizer costs, increased transportation expenses, the Russia-Ukraine conflict, weather patterns in key dairy regions, global trade disruptions, and supply chain issues. Other factors such as migrant labor shortages and higher interest rates also played a role in driving up production costs.
Emma Higgins, a senior agriculture analyst with RaboResearch, pointed out that feed expenses were the primary driver of the cost increases, with average feed bills across the eight regions rising by 19% from 2019 to 2024. Producers with access to pasture grazing tended to benefit from lower manufactured feed usage and, consequently, lower production costs. Countries like New Zealand, Ireland, and the Netherlands, where pasture access is abundant, allocated about 30% of their total milk production costs to feed. In contrast, larger-scale dairy farming systems in the United States and China required higher feed usage, with California, the Upper Midwest, and China collectively allocating around 55% of their total costs to feed on average.
China led the group with 64% of production costs allocated to feed in 2024, although this was a 3-percentage point decrease from 2023. California closely followed with 56% of costs dedicated to feed in 2024. Higgins noted that in 2024, global feed prices became more affordable due to favorable yields, supportive weather conditions, and growing global stockpiles, alongside falling corn and soybean prices. California experienced the most significant reduction in feed costs, with a nearly 30% decrease in 2024 compared to the previous year.
In the United States, dairies with access to locally grown feed generally had lower production costs than those relying on imported feed from other states, with transportation and energy costs playing a significant role. The Upper Midwest had lower feed bills than California due to its proximity to large corn and soybean growers. Looking ahead, the future trajectory of milk production costs will hinge on various factors, including fluctuations in feed-related commodity prices, developments in global trade policies, currency and energy market shifts, and changes in dairy demand from China.
China, despite having the highest milk production costs, has become more cost competitive in recent years. Feed expenditures still account for over 60% of China’s total milk production expenses, but the country’s domestic feed production has been improving, leading to a 13% decline in feed costs in 2024 compared to the previous year. This improvement in production costs and lower domestic milk prices in China have had implications for the global dairy commodity supply and demand balance, contributing to a downcycle in dairy commodity prices as China’s increased self-sufficiency and weaker economy reduced its demand for imported milk products.
In conclusion, the rise in global milk production costs over the past few years has been driven by a variety of factors, with higher feed prices playing a significant role. As the industry continues to navigate these challenges, it will be essential to monitor developments in feed prices, trade policies, and other key factors that can impact production costs and the overall dairy market.
