Global dairy costs of production: 2024 bought some relief to costs

Key influences

The cost of production increased for all eight regions studied (Argentina, Australia, California, China, Ireland, New Zealand, the Netherlands and the Upper Midwest). Key input costs (which include feed and fertiliser prices) increased at farmgate level, influenced by the Ukraine war, challenging weather conditions, rising energy prices, trade disputes, shipping costs, and other supply chain disruptions, coinciding with post covid inflation. Increased interest rates further increased overhead costs.

Feed costs, which rose by 19% on average, remain the top influence on cost of production for all regions. They account for at least 48% of total productions costs for producers in California, the US Upper Midwest, China, Australia and Argentina.

Labour, typically the 2nd or 3rd biggest cost, also increased during this period, with low availability and higher wages pressuring margins.

Relief in 2024

Cost relief occurred in 2024 across all eight regions, driven by improved weather conditions, better yields and increased supply availability, which helped to ease feed and fertiliser costs. Additionally, most regions experienced a decline in interest rates.

California recorded the biggest reduction in feed costs, followed by China. Both regions experienced lower feed costs in 2024 than the five-year average.

Regional highlights

US regions which are further from feed supplies, such as California, faced the highest costs between 2019 to 2024. However, feed costs in 2024 became more affordable due to better yields.

China continues to face the highest costs but has made significant progress in becoming more price competitive since 2021, driven by a decrease in feed costs. As China is reliant on imported feed, the government is currently promoting more domestic production.

Australia and New Zealand remain the lowest-cost milk producers, due to their pasture-based systems, supplemented with locally produced feed. However, an increase in labour costs in Australia (costs soared over 50% higher from 2021 to 2024 due to low availability) has pushed New Zealand into the lead in terms of highest margins (milk price minus operating costs). However, Australian interest and labour costs are said to have now subsided.

Argentina experienced the largest increase in production costs, rising from 40% from 2019 to 2024. Inflation and a weak domestic market have reduced profitability in recent years.

Irish farmers experienced the second highest cost increase and, difficult weather conditions led to a decline in production, which spread the higher costs over lower milk volumes.

Future outlook

Rabobank expects average operating costs to remain high and variable over the next decade. A period of higher interest rates, regulatory pressures, the ever-changing geopolitical environment, energy transition costs and climate change impacts are named drivers. However, lower interest rates are expected in the 2024/25 season.

Producers who focus on efficient resource use, such as investing in precision technology are likely to be more resilient to market fluctuations. Additionally, those who have own control over costs (such as pasture-based systems), or have diversified production systems can reduce exposure to volatile feed costs.

Notes
Cost comparisons are based on standardised milk composition, regional production costs and milk prices converted to US dollars.
Margin calculations exclude some costs, such as high interest repayments in New Zealand, and depreciation.

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