Decline seen for European dairy supply chains

The European milk pool is projected to decline by around 5% over the next decade, signalling a period of potential disruption for EU dairy supply chains, according to Tom Booijink, senior dairy specialist for Europe and Africa at industry analysts Rabobank. While this contraction will be felt across the region, its impact will vary by geography, creating nuanced challenges for processors and farmers alike, he says in the report, ” Adapting to change – Strategies for EU dairy processors amid milk supply decline.”

The reduction in milk supply stems from a confluence of factors, including policy pressures, where EU and national regulations on the environment (including buyout programs and additional taxation) and animal welfare are increasing compliance costs. Additionally there are demographic shifts, with an aging farming population and rural depopulation compounding labour shortages. Climate impact will also have an effect, with global warming adding further stress to production systems. 

Together, these dynamics diminish competitiveness and reduce the overall milk pool available for processing.

The implications for dairy companies are clear. A contracting milk pool will require strategic adaptation, particularly for processors heavily exposed to EU regions with diminishing milk supply. Key strategic levers include corporate activity, which can include exploring mergers or acquisitions to secure supply. Milk procurement strategies are another idea, by offering farmers more attractive conditions, such as transparent milk prices, performance-based bonuses, sign-on bonuses, and lower entry barriers for cooperative membership, in order to retain and attract suppliers. Geographic diversification for companies is also required, by expanding the asset base to EU regions with growth potential or, for companies with overseas production facilities, reducing dependence on Europe for sourcing dairy raw materials. 

From a strategic outlook perspective, these measures aim to maintain production capacity and meet customer demand despite shrinking local milk pools. Companies that act early to secure supply and optimise milk utilisation will be better positioned to navigate this structural shift.