British retailers will need to at least match world milk prices if reliable supply is to be secured in the future, latest research from Kite Consulting suggests.
Despite a milk glut in 2025, the oversupply was temporary and a result of UK farmers responding quickly to favourable margins, good weather and fewer production restrictions than seen in the EU or New Zealand, the Decoding Dairy Disruption – Why UK Retailers Must Rethink Dairy Procurement Strategy report showed.
For decades, the UK dairy sector has been focused on domestic retail, shaped by the logistics and pricing of liquid milk, the report claimed.
However, the market was beginning to evolve with new export opportunities and processors such as Arla and Müller investing heavily in export capabilities – including mozzarella, powders and whey. As a result, UK milk was increasingly tied to global markets where premium-added products commanded higher returns, the report suggested.
In addition, it cautioned that higher sustainability, carbon metrics, and animal welfare standards commanded by UK retailers could also lead to them being outcompeted by better-paying international counterparts with fewer demands.
It found that UK milk prices consistently trail comparable EU countries – 2.3p lower on average over 19 years when compared with Denmark, for example.
“What was once, for most of the time, a buyer’s market is now becoming a seller’s market, and this will only accelerate as new processing facilities come online,” explained Kite Consulting owner John Allen.
“Farmers are beginning to question the value of traditional cost of production (COP) models, which cap upside in buoyant markets. With global prices often outperforming domestic benchmarks, producers are seeking more flexible, reward-driven pricing.”
Shift in power, pricing dynamics and expectations
Allen added that the shift in power, pricing dynamics and expectations was here to stay.
“Export opportunities and policy threats in the UK could put their [retailer] supply at risk,” he said. “That means revisiting pool contract terms, improving milk pricing structures, and offering meaningful incentives for sustainability, biodiversity and supply consistency.”
Allen also urged milk processors to have a strategy to secure future milk supplies and avoid being outcompeted by ambitious peers in the future.
“While milk has been plentiful this year, it doesn’t mean it is always going to be,” warned Allen. “There is no structural change or issue, and supply pressures remain.”
The report comes after Tesco announced new financial incentives for more than 400 British farmers, in a move it claimed could see them benefit from more than £9.5m of additional payments in the first year alone.
From next month, 260 UK dairy farmers, belonging to the supermarket’s Sustainable Dairy Group and who supply milk through Müller UK, will earn up to an extra 2.5p per litre of milk if key targets on emissions reduction, animal health, feed conversion efficiency and genetic improvements are achieved.
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