This week, with its plenary vote, the European Parliament sent a signal in support of Europe’s farmers. A majority of Members of the European Parliament (MEPs) voted against harmful amendments pushed by representatives of industrial interests and in favour of a progressive report that continues to pursue the goal of strengthening producers’ position in the food supply chain: a first important step towards fairer markets.

In early September, the Agriculture Committee of the European Parliament adopted a draft opinion on the proposals tabled by the European Commission to amend the Common Market Organisation (CMO). The German family farmers’ association AbL especially welcomes the proposed changes to rules that require mandatory written contracts as they would strengthen the position of farmers in negotiations for fair producer prices.

This summer, the German dairy farmers’ association BDM celebrated its 20-year anniversary with summer fests and dairy farmer evenings. Two key events took place in September: the Fair Milk Conference in Dortmund and the Agriculture Ministers Conference in Heidelberg. We are currently gearing up for our symposium, which will be held on 7-8 November in Arnstadt near Erfurt – for the first time outside of the International Green Week. Against this backdrop, setting the political agenda comes strongly into focus.

From the outside, it looks like things are calm on the dairy market. But a closer look reveals that milk standards are unravelling and leading to greater price opacity. Modules, bonuses and animal welfare levels are distorting the concept of base price. Where is the market for producers, and how can they ensure a fair share for themselves?

At 53.3 cents per kg, the producer price is currently at the record levels of 2022. Dairies (including cooperatives) are patting themselves on the back and retailers are further building on their position and margins with a whole range of offers and promotions. Sales remain stable in spite of higher product prices. The main factors are decreasing milk volumes and thus a decreasing amount of raw material (a drop of almost two percent in the first half of 2025 as compared to the previous year).

Reasons for this include the construction of expensive stables, staffing issues on mid-sized and larger farms – in addition to “normal structural changes” due to farms going out of business. Especially in northern and western Germany, blue tongue disease has exacerbated this EU-wide trend. If the virus is (temporarily?) contained, the number of calves will increase and the concerns linked to higher milk supply will emerge again. Experts project two-percent growth for the second half of the year, which makes it difficult to predict how prices will evolve in the coming months. As is the case with African swine fever for pigs and avian influenza for poultry, this animal disease is a big unknown here as well.

Changing milk supply

There is rumbling below the surface. The jolt of sector leader DMK being acquired by the Danish Arla to create northern Europe’s largest milk corporation is not the only thing that is making the dairy sector (including retailers) sit up and take notice. Producers and the competition are still none the wiser about the reasons behind this “merger”. DMK members, in particular, were bombarded with a stream of propaganda in the lead-up to the decision. The hope of better prices was a decisive factor for DMK dairy farmers to vote in favour, given that they have been underpaid for years. However, critical market experts have identified another reason: this is not a merger of two heavyweights looking to dominate the market, but in fact, two ailing businesses threatened with raw material shortages. DMK also mentions structural problems. “Let’s see how many facilities survive. I fear that it won’t be many”, says an insider, who is certain that DMK’s supply contracts are what Arla is most interested in, rather than in the business itself. Even the largest Arla facility in the Eifel region is currently running under its full capacity, which means that milk from far away is being carted in – something that other (Danish) sites do not appreciate. All in all, milk supply flows are changing massively. Less milk from Poland, raw material sought from Holland, more from Austria, all increasing the pressure in northern Germany and beyond.

Milk is no longer just milk

To balance out their own raw material shortfalls in 2024, northern German dairies bumped up producer prices. According to AMI (Agricultural Market Information Company), the gap between north and south shrank from 8 to around 2 cents per kg. The west is somewhere in between; the east is at northern level. The price spread is thus quite small. Autumn will tell whether the all-time high will be surpassed (53 cents in 2022).

A relatively new phenomenon in price setting is quite dramatic for dairy farmers and makes comparison more difficult. Conventional standard milk is no longer a kind of benchmark. Milk with or without GMO-free feed, milk with animal welfare labelling HF 2, 3 or 4 (HF - husbandry form) and milk complying with specific dairy demands – a different price is paid for milk based on conditions and dairy evaluation, which massively undermines the transparency of the base price. “That’s not something we want either”, say producer representatives firmly. The most common current practice at Arla is a low base price and high bonuses, if you comply with their latest modules. Dairies demand audits and there is no special exit clause for situations where bonuses, and thus prices, change. The base price is 46.8 cents per kg, to which can be added: +1 cent for GMO-free feed, +1.5 cents for pasture grazing, +1 cent for climate check, +1.65 cents sustainability bonus and other add-ons for collection that is not time-specific, accessibility, milk outlet pipes, etc.

Animal welfare bonuses: too low and too opaque

An AMI calculation for the federal state of North-Rhine Westphalia shows how milk supply has already changed (similar in other regions): GMO-free up to animal welfare level HF2 at 50% is the de facto ‘standard’, about 32% is higher than this level (QM++, HF3, partial/full pasture grazing, animal welfare/environmental protection), conventional milk now accounts for only 15%. Discount supermarkets/retailers are the main drivers; when it comes to export (often >50%), this added value doesn’t play much of a role – leading to contradictory strategies. Hochwald advertises 80% HF3, but pays a low base price and just about manages to rise above the average price with several bonuses. Even DMK reduced their HF3 bonus from 3 to 2 cents at the beginning of the year.

According to market experts, the real price increase for welfare level HF3 is between 1.5 and 2 cents per kg – very little compared to the significantly more demanding conditionality. Adviser calculations show that pasture grazing must be compensated with a bonus of at least 6 to 8 cents to offset the increased effort. 

Wanted: new ways forward

That said, the future of milk production is in the higher animal welfare levels. Market pressure (retailers and consumers) is not going to let up: retailers want more animal welfare at only slightly higher prices; the dairy industry is the one laying down the conditions. Producers (and their organisations) must be highly vigilant to ensure that this change is not to their detriment and must fight for a better base price and more added value – otherwise they will continue to lose out in this animal welfare-based system, just like they did in the ‘old system’. This is something that producer organisations are aware of but they lack alternative models for price building. Negotiations about contract duration must also be conducted expertly. “The market exists – you just have to find it.”

The full text (available in German) was published in the September issue of Unabhängige Bauernstimme 

Hugo Gödde, market analyst

Denmark has introduced mandatory feed-based measures for larger dairy herds in order to curb climate emissions from cows. Turning policy into practice is a real-world test – technically speaking, in rations and routines, and politically across the sector as costs, logistics and acceptance are widely debated.