The British and European dairy market enters 2026 with a structural issue still unresolved: milk supplies remain higher than processing capacity, exerting continued pressure on prices at source, as highlighted by AHDB analysis. After a rebound linked to growing demand and geopolitical tensions in the Middle East, prices are weakening again, while production costs rise along the supply chain, compressing margins, especially for farmers.
In the first quarter of the year, milk deliveries in the United Kingdom grew 3,1% year-on-year, with increases of 3,7% in January and February and 1,8% in March. However, this figure comes amid an already expanding market, with production remaining 4,2% above the five-year average. The dairy year thus closed at a record high of 13,02 billion liters, while the next cycle is expected to essentially stabilize at 13,04 billion, a sign of continued ample supply despite the slowdown in growth.
Increased yields per head are helping to support volumes, offsetting the decline in cattle numbers: the British dairy herd has fallen to 1,60 million head, a ten-year low. Globally, production continues to grow, driven primarily by the European Union and the United States, with increases of 5,2% and 3,3%, respectively. Italy, Germany, and France also recorded significant increases, confirming ample supply in the main exporting regions.
Despite this, the first quarter surprised with the recovery in wholesale prices, supported by financial factors and concerns about product availability in an uncertain geopolitical environment. The international auction index recorded an overall increase of 28,7% in the quarter, before declining again in April. Among products, skim milk powder stood out for its most solid performance, supported by protein demand and reduced global availability, while butter and cream showed greater volatility, with more recent signs of weakening.
The market value of milk recovered to 35,4 pence per liter in March, suggesting possible farmgate price increases in the coming months, although the outlook remains uncertain. Producer prices, which averaged 36,1 pence per liter in February, are down approximately 10 pence compared to autumn 2025, with most processors and retailers experiencing a stabilization phase.
On the cost front, the situation appears more critical: the conflict in the Middle East is impacting energy, fertilizers, and logistics, with increases of up to 30% for some inputs such as ammonium nitrate, further exacerbating the pressure on agricultural margins, as noted by AHDB. Retail demand remains stable overall, with growing consumer interest in high-protein products, supporting categories such as yogurt and fresh cheese.
Overall dairy volumes decreased slightly (-0,2%), but spending increased by 5% thanks to higher average prices. Yogurt (+6,6% in volume) and cheese (+1,9%) stood out, while fresh milk consumption declined. On the international front, price competitiveness is supporting exports: in the fourth quarter of 2025, UK exports grew by 28% in volume, reaching 367 tonnes, with a value of £551 million.
The expansion affects all major categories, particularly milk and cream, powders, and cheese, while imports are slightly down. Overall, the sector is in a delicate balance between oversupply, market volatility, and cost pressures, with prospects affected by geopolitical developments and the ability of demand to absorb available volumes.
