EU Milk Surplus: What Farmers Actually Decide When Prices Slide Toward Costs

The tank fills twice a day. Payment arrives once a month. And in March 2025, the number on the statement drops below what it cost to fill the tank.

Not dramatically. Not suddenly. Just enough that the margin you counted on isn’t there anymore.

This isn’t new. Milk markets cycle. But this cycle arrives with different conditions than five years ago: higher structural costs that don’t drop when prices do, payment contracts written when milk was 48 cents per liter, and dairy companies adjusting to persistent EU-wide surplus volume that no single country can absorb.

The decision isn’t whether to keep producing. It’s whether to keep producing the same way, under the same terms, while carrying all the volatility yourself.

What changed on the EU milk market

EU milk production increased through 2023 and into 2024. Demand didn’t match. Stocks accumulated. Prices dropped.

By early 2025, average farmgate prices across major dairy regions sit between 38 and 42 cents per liter, depending on contract terms and region. That’s down from 45–50 cents in mid-2023.

Feed costs remain elevated compared to pre-2021 levels. Energy costs stabilized but didn’t return to 2019 benchmarks. Herd replacement costs stayed high.

The gap between revenue per liter and cost per liter narrowed. On many farms, it disappeared.

This isn’t weather. It’s structural surplus meeting contract structures designed for stable demand.

Where the pressure sits in the value chain

Dairy companies face surplus milk they can’t move at previous prices. Storage has limits. Export markets absorbed some volume, but not enough to clear the overhang.

The adjustment mechanism: reduce farmgate price until enough producers slow output or exit.

Farmers with volume contracts signed at higher reference prices face a choice: deliver at the new price, or trigger penalty clauses for under-delivery that often cost more than the margin loss.

Farmers with flexible contracts can reduce delivery volume without penalty. But fewer liters means fixed costs spread across less revenue, which only works if variable costs drop proportionally.

Most don’t.

The volatility doesn’t distribute evenly. It concentrates at the production end: the farm carries price risk, the processor carries volume risk, and retail price moves slower than either.

Typical responses farmers across the EU already use

Reduce delivery volume

Some farms hold back high-cost cows from milking or cull earlier than planned. This works if the cows removed had the highest feed-to-milk cost ratio.

Time cost: 5–10 hours to model which cows to remove and adjust feeding plans.

Cash impact: Immediate revenue drop, slower cost reduction. Breakeven depends on whether culled cows had positive or negative margin.

Risk: If prices recover within 6 months, the herd is smaller and ramping production back up takes 12–18 months.

Shift contract structure

A minority of farmers renegotiate toward base-volume contracts with lower guaranteed prices but capped downside exposure. This trades margin in good years for stability in bad ones.

Time cost: 3–6 months of contract negotiation, often requiring cooperative or processor policy change.

Cash impact: Depends entirely on contract terms. Some reduce immediate revenue by 2–5% to limit future exposure by 10–15%.

Risk: Locks in lower ceiling. If market rebounds, you’re contractually limited from capturing upside.

Accept lower margin and wait

Most farms do this. Maintain current volume, absorb the margin loss, wait for prices to recover.

Time cost: None upfront. But if the low-price period extends beyond 12 months, delayed maintenance and deferred investment start creating compounding costs.

Cash impact: Depends on starting margin. Farms operating at €3–5k monthly buffer can absorb 6–9 months. Farms at breakeven can’t.

Risk: Prices don’t always recover on the timeline cash flow requires.

What breaks first under extended low prices

Cash flow breaks before structure does.

Feed bills arrive monthly. Loan payments don’t pause. Veterinary costs don’t drop because milk prices do.

The first signal: delaying non-urgent repairs. The second: using operating credit to cover input costs. The third: selling forward production at even lower prices to access immediate cash.

By the time a farm considers selling cows to cover shortfall, the structural damage is already done. Herd liquidation under financial pressure rarely achieves good sale prices, and rebuilding takes years.

The farms that manage extended low prices without structural damage share one trait: they entered the period with 6–12 months of cash buffer and contracts that allowed volume flexibility without penalty.

What this situation does NOT require yet

Wholesale herd liquidation makes sense only if the farm was already marginal before prices dropped. If the operation was viable at 42 cents per liter in 2023, it’s still structurally viable now. Prices will move.

What’s not clear: when, and whether your cash flow lasts until they do.

Expanding production during low prices rarely makes sense unless expansion was planned at these price levels and financed independently of current margin. “Produce your way through” works only if variable costs are genuinely variable and you have contract flexibility to move additional volume.

Most farms don’t.

Diversification into on-farm processing or direct sales is a separate business decision with 18–36 month payback horizons. It doesn’t solve immediate cash pressure. Treating it as a response to low milk prices usually means starting it under the worst possible conditions: no cash buffer, high stress, compressed timeline.

The actual decision

The farm either operates with enough cash buffer to absorb 6–12 months of compressed margins, or it doesn’t.

If it does: the decision is whether to maintain volume or reduce it, and that depends entirely on contract terms and whether variable costs actually drop when volume does.

If it doesn’t: the decision is whether to access short-term credit to extend runway, renegotiate contract structure to reduce exposure, or reduce herd size now before forced liquidation makes the decision for you.

This happens in the next 60–90 days. Waiting to “see how prices develop” only makes sense if current cash reserves can cover that waiting period without compounding problems.

Accepting higher price volatility as normal means building contract and cash structure that can absorb it. Reducing exposure means trading margin ceiling for stability floor. Both cost something. Neither is neutral.

For most farms, that choice breaks down to one number: how many months can you operate at current prices before fixed costs force structural change? If that number is less than six, the decision is already late.