Challenging Times for the Dairy Market

The situation in the milk market can be described as unfavorable. The prices of raw milk have been declining since January 2023, reaching a level of 188.67 zł/hl in July 2023. This represents a 2.5% decrease compared to the prices paid by dairies in June 2023. Furthermore, the price in July is 19.3% lower than the price offered to producers during the same period in 2022. Over the course of a year, milk prices have fallen by approximately 20%. Unfortunately, the same cannot be said for production costs, as some categories have even increased.

When it comes to the economics of production, the phrase „cutting costs” is often heard. However, it seems that in the case of cattle farming, cost-cutting measures that can be implemented have long been introduced, and further attempts are met with insurmountable obstacles. It is important not to cross this limit, as excessive cost-cutting measures can result in increased production costs or, in extreme cases, losses in the form of missing animals.

Considering the high-yielding dairy herds, it is difficult to find areas where further cost-cutting measures can be applied. Farms specialized in milk production closely monitor expenses, knowing that every penny spent must be calculated based on the quantity of liters produced, which can amount to a significant sum. It is also important to remember that ruminants, such as cattle, do not appreciate sudden and frequent changes. Utilizing opportunities for lower-priced feed for a short period, for example, is not a good practice and can disrupt the animals’ digestion, especially since ruminants and the microbiome in their rumen adapt to new feed over several weeks.

So how can profitability be increased? It is easy to give advice: „You’re not earning enough, cut costs!” However, there is very little room left for cost-cutting measures, if any. The only solution for higher revenue is higher prices offered for milk, but this is regulated by the market. Nonetheless, there is still much to be done in this market to bridge the price gap between what farmers receive and the final price consumers have to pay for the purchased product. The largest margins exist in the final stage of trade. Major retail chains continue to exploit their contractual advantage, constantly pressuring dairies to lower prices.

Another path some farmers choose to increase production profitability is to increase the scale of production. However, this is not a simple or cheap solution, as it involves significant initial costs to expand infrastructure and, in the long run, permanently raises production costs associated with managing a larger herd. In the coming years, the structure of dairy farms is likely to undergo changes that aim to increase production scale. It will become increasingly difficult for smaller farms, where some fixed costs are on a similar level to those of larger farms, to sustain themselves in the market. Generational change will also contribute to these ongoing changes, as fewer young people are willing to take on the characteristics of work found in the dairy industry. It is also becoming more challenging to find dedicated employees ready to work with animals and adhere to the specific working hour schedule.

Sources:
– Dairy Market Source (sourceurl)
– Cattle Farming Economics Report (sourceurl)