As global dairy markets grapple with significant oversupply, farmgate milk prices in key producer nations are experiencing renewed downward pressure. The UK and the United States, two major players in global dairy trade, are witnessing substantial price cuts amid high milk output and flat demand. The situation is now prompting Indian dairy stakeholders to assess how prepared the sector is to weather similar volatility.
Farmgate Milk Prices Under Pressure in the UK
British dairy farmers are contending with further reductions in milk prices, even as production volumes remain elevated. In mid-December, average daily deliveries in the UK were tracking over 5% higher than the same period in 2024, despite the steep price fall. Leading processors have responded with price cuts:
- Arla reduced its January 2026 price by 3.5p/litre, setting the standard manufacturing litre at 35.73p.
- Müller announced a 3p/litre cut for February, lowering its standard liquid litre to 34.5p, excluding premiums.
These reductions place farmgate returns more than 12p/litre below January 2025 levels. Some smaller regional processors are reportedly paying below 30p/litre, pushing many farmers into unsustainable margins.
Milk Supplies Remain High Across Major Exporters
The surplus issue is not limited to the UK. Across global export regions, average daily milk deliveries remain elevated, with some markets hitting seasonal highs. The chart below illustrates average milk deliveries (in million litres per day) across key exporting countries from September 2023 to September 2025:
The chart reveals:
- The European Union (excluding the UK) and the United States consistently recorded the highest delivery volumes, averaging over 300 million litres/day and 200 million litres/day respectively.
- New Zealand, following its traditional seasonal pattern, experienced delivery peaks in January and November, surpassing 70 million litres/day before falling sharply during off-peak months.
- Argentina, Australia, and the UK maintained more stable but modest delivery levels, with the UK averaging just above 40 million litres/day.
This sustained high production is outpacing market absorption, particularly as retail sales remain flat in key markets. Global dairy prices are adjusting downward, further pressuring producer returns.
US Output at Record Levels Despite Market Saturation
The United States reported November 2025 milk output of 18.79 billion pounds, up 4.5% year-on-year. The national herd stood at 9.57 million cows, with average yields rising 2.1%, supported by improved genetics and efficiency. States like California, Kansas, and Texas led the surge, with California alone recording a 10.4% increase year over year.
Cheese and butter inventories remain high, but market prices continue to slide. Cheddar blocks fell to their lowest price since June 2023, while butter closed the year at $1.4025 per pound, down $1.17 from a year ago.
China and Trade Policy: Growing Impact on Dairy Dynamics
Global trade dynamics are also shifting. China, the world’s largest dairy importer, imposed provisional tariffs of up to 42.7% on EU dairy imports, citing harmful subsidies. While framed as a political response, analysts suggest it is also a strategic move to encourage domestic self-sufficiency.
China’s cheese imports rose by 31.4% year-on-year, driven by demand from food service and retail sectors. New Zealand and Australia have gained market share, while imports from the EU and the US saw declines.
India’s Takeaway: Managing Growth Amid Global Volatility
For India, which is the world’s largest milk producer but a relatively small exporter, these global developments carry critical strategic implications. With domestic milk output rising and cooperative systems still navigating post-pandemic adjustments, Indian policymakers and industry leaders must consider:
- Strengthening value-added dairy product portfolios.
- Expanding and diversifying export channels to reduce dependence on domestic demand cycles.
- Introducing flexible milk procurement and pricing models to prevent stockpiling during flush seasons.
- Encouraging sustainable production growth to avoid the pitfalls of unchecked surplus.
Conclusion: Rethinking Dairy Strategy in a Surplus Era
Global milk output is projected to rise modestly through 2026, led by the US, Australia and Argentina. While this may be good news for processors, producers face a margin squeeze unless prices stabilise. The Indian dairy sector must watch these trends closely, especially as discussions around milk price reform, component-based payments, and export competitiveness gain momentum.
In a world where even a 2% surplus can collapse prices for the other 98%, strategic supply management and innovation will be key to protecting farmers and sustaining growth.
