Milk prices are rising, but how long will farms stay in the game?

Milk prices are rising, but how long will farms stay in the game?

There is currently a positive mood in the air among milk producers in northern Germany. The current price of milk has exceeded 50 cents per liter, giving farmers hope. This is the longest period since the 1980s in which consistently high milk prices have been observed. However, there are challenges that need to be overcome. As Elite Magazin reports, investments in new cowsheds are stagnating throughout Germany. Many companies are forced to continue operating old, depreciated stables, while compliance with increasing standards creates uncertainty.

Currently, some 200-cow farms are even giving up, and despite the high milk prices, we are observing a decline in the number of cows, especially in the north and northwest of Germany. High prices may be attractive in the short term, but they also preserve structures that are not competitive. To secure the future of milk production, farmers need continuous good returns for milk and meat. In addition, simplifications in building law as well as less bureaucracy and production requirements are of crucial importance. Potential successors to the farm long for clear signals from politics and trade.

Animal welfare and milk prices: an exciting interaction

Another important aspect that influences milk prices is the increasing requirements for animal welfare standards. A current study by the ife Institute for Food Economics Kiel examines the financial impact of higher animal welfare standards in milk production. According to Milchland, there is growing consumer interest in animal welfare, but transparency suffers from the multitude of different labels.

The study shows that the introduction of better animal welfare standards causes additional costs for companies. For the entry level of the animal welfare label, farmers have to expect an average of 2.28 cents per liter, while the premium level even costs an additional 2.64 cents. The dairies also have to contend with additional costs, which can be between 5.7 and 18.9 cents per liter, depending on the company. A uniform, government-supported animal welfare label could help overcome these challenges and increase the number of consumers willing to pay.

Market shares and consumption trends

The study also includes 159 dairy companies in Germany, 64 of which produce drinking milk. Only 10 to 12 of these companies process raw milk with higher animal welfare standards. While the proportions of raw milk with these higher standards are still low, they are showing an upward trend, as the analysis impressively shows. In 2019, the production of drinking milk in Germany amounted to 4 billion liters, of which 3.3 billion liters went to food retailers.

However, the total consumption of private households shows a downward trend, which has fallen by around 2 percent annually in recent years. In particular, there was a decline of 5.3 percent from 2018 to 2019 - a trend that should make dairies and farmers think about how they can make their products more attractive to consumers.

The future of milk production in northern Germany therefore depends not only on prices, but also on the associated standards and the ability to adapt to the changing demands of the market. The next period will show how the industry responds to these challenges.