This chapter describes market developments and medium-term projections for world dairy markets for the period 2026-2035. Projections cover consumption, production, trade and prices for milk, fresh dairy products, butter, cheese, skimmed milk powder and whole milk powder. The chapter concludes with a discussion of the key risks and uncertainties which could have implications for world dairy markets over the next decade.
OECD‑FAO Agricultural Outlook 2026‑2035
Abstract
Dairy products continue to be highly valued by consumers as a key component of a healthy, balanced and nutritious diet. As income and population increase, more dairy products are expected to be consumed globally over the medium term.
Asia, particularly India and Pakistan, will continue to have the strongest growth in consumption of fresh dairy products. Further increases are expected in Europe and North America where cheese consumption is already high.
Global milk production is expected to grow steadily, primarily supported by higher yields per animal. World milk production (81% cow milk; 16% buffalo milk; and 3% for goat, sheep and camel milk combined) is projected to grow at 2.0% p.a. over the next decade, sustained by increasing yields per animal, with growth in the dairy herd expected to be moderate.
More than half of the growth in milk production is anticipated to come from India. On the other hand, the milk production in the European Union, the second-largest producer, is expected to remain at current levels.
Environmental and health concerns are shaping the projections for the dairy sector. Dairy production contributes to overall greenhouse gas (GHG) emissions and nitrogen pollution. In some high-income countries, environmental constraints are resulting in a shift in production systems and reductions in dairy herd populations.
Only a small share of milk (less than 7%) is traded internationally, mainly in the form of processed dairy products. Although milk production in the three major dairy exporters –the European Union, New Zealand and the United States – is expected to increase only modestly, their exports are projected to jointly account for nearly 70% of global dairy exports.
The gap between butter and skimmed milk powder prices is expected to persist throughout the projection period. This development is attributed to a relatively stronger demand for milk fat compared to non-fat milk solids on the international market. While improvements in feeding technology and genetics increase the milk solids content of milk, the proportions of fat and non-fat solid contents change only very slowly.
The dairy sector faces several uncertainties. Animal diseases are not assumed to constrain production significantly, but they could cause supply disruptions as in recent disease outbreaks in dairy cattle. Higher levels of technology adoption could also support greater improvements in milk yields and production than expected.
Dairy and milk prices increased in 2025 driven by higher butter prices
The Food and Agriculture Organization’s Dairy Price Index increased in 2025, reflecting strong price gains in the first half of the year, driven primarily by cheese, whole milk powder and butter, the latter reaching a record high in June. In comparison, skimmed milk powder prices rose only marginally. Prices declined in the second half of 2025, due to higher than anticipated global milk production in major exporting countries. The price spread between the fat and non-fat components of milk continues to characterise global dairy markets due to persistent high demand for milk fats.
World milk production grew 2.1% in 2025 to 1 005 million tonnes (Mt). Production increased by 3% in India and Pakistan to reach 255 Mt and 69 Mt, respectively, with little impact on the world dairy market as they export only marginal quantities of milk and dairy products. Milk production also increased among the three major exporters (New Zealand, the United States and the European Union) in 2025.
World dairy trade expanded modestly in 2025, increasing by around 1%. Growth was concentrated in a limited number of countries, including some major importers of dairy products: People’s Republic of China (hereafter “China”) and Saudi Arabia. However, other major importers of dairy products – Algeria, Iraq and Mexico – decreased their imports. Going forward, of the major exporters, the United States would be a beneficiary of any additional export demand due to constrained production growth in the European Union and New Zealand.
6.3.1. Consumption
Strong demand in India and Pakistan is leading increased global dairy consumption
Although milk is a highly perishable product which must be processed shortly after collection, most milk is consumed in the form of fresh dairy products,1 including those fermented and pasteurised. The share of fresh dairy products in global consumption is expected to increase over the next decade due to stronger consumption growth in India and Pakistan, which in turn is driven by income, urbanisation and population growth. World per capita consumption of fresh dairy products is anticipated to grow by 1.9% p.a. over the coming decade, primarily due to higher per capita income growth.
Dairy consumption per capita (in terms of milk solids) varies widely across countries (Figure 6.1), driven by differing income levels and regional preferences. The most significant growth is expected in India and Pakistan, where milk solids consumption is expected to increase to 33 kg and 44 kg per capita by 2035, respectively. The average fresh dairy consumption per capita in China is significantly lower than in the European Union and North America. In low-income and lower middle-income countries, most of the production is consumed in the form of fresh dairy products, a preference which is expected to persist over the next decade.
In high-income countries, overall per capita demand for fresh dairy products is declining but the composition of demand has been shifting over recent years in favour of dairy fat such as full-fat drinking milk and cream. Plant-based dairy replacements are available and compete more with fresh dairy products than with processed dairy products.
The share of processed dairy products, especially cheese, in overall consumption of milk solids is expected to be closely related to incomes, with variations due to local preferences, dietary constraints and urbanisation. The largest share of total cheese consumption, the second most consumed dairy product, occurs in Europe and North America, where per capita consumption is expected to continue to increase over the projection period (Figure 6.2). Considerable cheese consumption in emerging markets is linked to the consumption of pizza and burgers. Butter consumption has seen a recovery in North America and Southeast Asia due to shifting preferences. In addition, per capita consumption of butter, especially in the form of ghee, continues to increase from already high levels in India and Pakistan, although consumption of processed dairy remains low.
The dominant use of skimmed milk powder (SMP) and WMP will continue to be in the manufacturing sector, notably in confectionery, infant formula and bakery products. A small share of dairy products, especially SMP and whey powder, are used in animal feed. Whey powders are gaining prominence globally because of their use in the processing of nutritional products, especially of clinical, infant and elderly preparations and as an important alternative for reconstituted fresh dairy products, such as milk and yogurt especially in Africa and other regions with limited milk production.
6.3.2. Production
Greater efficiency in milk production through yield improvements
World milk production is projected to grow at 2.0% p.a. (to 1 223 Mt by 2035) over the next decade, faster than most other major agricultural commodities. Growth in the number of cows is expected to be low in milk-exporting countries such as New Zealand and the United States, moderate in China and sub‑Saharan Africa, and strong in major milk-producing countries such as India and Pakistan and parts of Central and Southeast Asia –where yields are low. Herds of other milking animals (sheep and goats) are expected to exhibit strong growth in sub-Saharan Africa, the Near East, India and Pakistan. Total milk yields across the world are expected to grow steadily and to contribute more to production increases than herd growth over the next decade. This yield growth will be achieved through optimising milk production systems, improved animal health, greater feed efficiencies and improved genetics.
India is the largest producer of milk and is expected to achieve continuing strong production growth (Figure 6.3). Production predominantly comes from cows and buffaloes and is based on small operations connected to co-operatives for processing and distribution. This integration into wider supply chains is important for the value added by the dairy sector in India. Growth is expected to come from more milking cows and buffaloes as well as from yield increases.
Production in the European Union is projected to stagnate, with fewer dairy cows and slower yield growth. Production originates from a mix of grass- and feed-based production systems. A growing share of milk is expected to be organic or from other non‑conventional production systems. At present, more than 10% of dairy cows are within, but not limited to, organic systems located in Austria, Denmark, Greece, Latvia and Sweden. France, Germany and Italy have also seen an increase in organic dairy production. Organic dairy farms, which have lower yields and incur higher production costs than conventional production systems, can be more profitable than conventional dairy farms, however, they have a long establishment period where likelihood of exiting organic production increases (Hirsch et al., 2026[1]).
The average yield per cow in North America is the highest in the world, as their share of grass-based production is low, and feeding is focused on achieving high yields from specialised dairy herds. Dairy herds in Canada and the United States are expected to remain largely unchanged and production growth to originate from further yield increases. As domestic demand is projected to remain stronger for milk fats, the United States will continue to expand SMP production, partly for export.
Although New Zealand’s share in world milk production is only 2%, it is the most export-orientated country. After expanding strongly, milk output growth has slowed down in recent years and is projected to grow at 1.0% p.a. over the next decade. Milk production is mainly grass-based and yields are considerably lower than in North America and Europe. However, the cost efficiency of grass management allows New Zealand to be competitive by focusing on milk yields per hectare. While the main constraining factors for growth are land availability, a shift to more feed-based production systems is unlikely.
Strong production growth is expected in Africa, mostly due to larger herds (Figure 6.4). These will usually have low yields and a considerable share of milk production will come from goats and sheep. Most cows, goats and sheep graze, and are used for other purposes, including meat production, traction and as capital assets (savings). Herd growth is supported by current pasture, resulting in more intensive use, which may lead to local over-grazing. Over the projection period, about 17% of the global dairy cow and buffalo population is projected to be in Africa and to account for around 4% of world milk production.
Note: The size of the bubbles refers to the total cow milk production in the base period 2023-2025.
Globally, around 25% of milk will be further processed into products such as butter, cheese, SMP, WMP or whey powder in the coming decade. However, there are notable regional differences. In high-income countries, a high proportion of milk produced is transformed into dairy products, whereas in low- and lower middle-income countries most milk production is consumed as fresh dairy products. There is significant direct food demand for butter and cheese in Europe and North America, which account for a large share of consumption. SMP and WMP are largely produced for trade and use in the food processing sector.
6.3.3. Trade
Milk is traded internationally mainly in the form of processed dairy products
Most dairy products are domestically consumed. Only a small share (less than 7%) of world milk production is traded internationally, primarily due to its perishability and high water content (more than 85%). Around 50% of world production of WMP and SMP is traded since these products are often produced only to store and trade milk over longer time periods or distances. Fresh dairy products such as fermented milk products are traded in small amounts between neighbouring countries – between Canada and the United States or between the European Union and Switzerland, for example. One exception is imports of liquid milk by China from the European Union and New Zealand, made possible by ultra-high temperature milk and cream products capable of being shipped long distances, and in some cases, favourable Chinese freight rates.
World dairy trade is projected to expand over the next decade to reach 13.7 Mt in 2035, 11% higher than during the base period. Most of this growth will originate in the European Union, the United States, and New Zealand. These three exporters are projected to jointly account for around 67% of cheese, 64% of WMP, 69% of butter and 73% of SMP exports in 2035 (Figure 6.5). In addition, the United States expected to increase market share more than the European Union and New Zealand. While Australia has lost market shares, it remains a notable exporter of cheese and SMP. Argentina is also an important exporter of WMP and is projected to account for 6% of world exports by 2035. In recent years, Belarus has become an important exporter, orienting its exports primarily to the Russian market due to the Russian embargo as of 2015 on several major dairy-exporting countries.
The European Union will continue to be the main world cheese exporter, followed by the United States and New Zealand. The United Kingdom, Russian Federation (hereafter “Russia”), Japan, Mexico and Saudi Arabia are projected to be the top five cheese importers in 2035. Since consumers value variety, these countries are often also exporters of cheese and international trade is expected to offer more choices of cheeses in the domestic markets.
New Zealand remains the primary source for butter and WMP on the international market, and its market shares are projected to be around 41% and 56%, respectively, by 2035. China is the principal importer of WMP from New Zealand. The expected growth in domestic milk production in China will limit the growth in WMP imports.
The United States is expected to be the most dynamic large exporter over the next decade and to expand SMP exports especially. This would require growth in drying capacity beyond current investments. SMP imports are dispersed globally as it is often the easiest dairy product to trade for use in food processing.
Imports are spread more widely across countries, with the dominant destinations for all dairy products being the Near East and North Africa, high-income countries, Southeast Asia, and China (Figure 6.6). China is expected to continue to be the world’s major dairy importer. WMP imports into China are projected to represent 15% of global imports in 2035, a 2.7 percentage point drop from the base period. Africa is expected to increase its imports of WMP considerably over the next ten years. Per capita consumption of dairy products in China is relatively low compared to traditional markets, but there have been significant increases in demand over the past decade, with growth projected to continue. Most of its dairy imports are sourced from Oceania, although in recent years the European Union has increased its exports of butter and SMP to China.
The global whey powder market is growing, driven by rising demand for diets high in protein and animal feeding. Trade of whey powder is expected to increase over the medium term, with China the top import market, mainly for animal feed additives. The European Union is projected to remain the dominant exporter of whey powder, which together with the United States accounts for almost 60% of world exports.
While some regions, such as India and Pakistan, are self-sufficient, total dairy consumption in Africa, Southeast Asian countries, and the Near East and North Africa region is projected to grow faster than production, leading to an increase in dairy imports. As liquid milk is expensive to trade because of its high volume/value ratio, this additional demand growth is expected to be met by milk powders, where water is added for final consumption or further processing. Imports by the Near East and North Africa region are expected to originate primarily from the European Union, while the United States and Oceania are expected to be the main suppliers of powders to Southeast Asia.
6.3.4. Prices
Nominal international dairy prices will gradually and slightly increase
International dairy prices are prices of processed products from the main exporters in Oceania and Europe. The two main reference prices are butter and SMP, where butter is the reference for milk fat and SMP for other milk solids. Milk fat and other milk solids together account for about 13% of the overall weight of milk, the remainder being water.
Dairy prices declined in the latter half of 2025 as the market corrected due to higher than anticipated global milk production in major exporting countries. In 2026, butter and SMP prices are foreseen to increase slightly in nominal terms and this increase is expected to continue over the projection period. The gap between the price of milk fat and non-fat milk solids is expected to remain a defining feature over the coming decade and considerably different levels between processed dairy products are maintained (Figure 6.7). World prices for WMP and cheese are expected to be affected by butter and SMP price trends, in line with the respective content of fat and non-fat solids.
Since 2015, increased demand for milk fat has resulted in the price of butter increasing considerably more than SMP, with a price gap emerging between the two products. The price of butter is expected to continue to be supported by stronger demand for milk fat compared to other milk solids on the international market. This reflects underlying differences in demand patterns, with non-fat solids often associated with more price-sensitive import demand while demand for milk fats – particularly in high-income markets – tending to show relatively more stable consumption patterns. Although improvements in feeding technology and genetics increase the milk solids content of milk, the fat and non‑fat solid components of milk changes only very slowly. Of the major exporters, the fat content of milk grew the fastest in the United States at 0.4% per year over the last decade, while growth in milk fat was slower in the European Union. In New Zealand, the annual growth rate for milk fat content was close to zero.
The strong historical volatility of international dairy prices stems from its small trade share, the dominance of a few exporters and a widely restrictive trade policy environment. Most domestic markets are only loosely connected to those international dairy prices as fresh dairy products dominate consumption, and only a small share of milk is processed compared to that which is fermented or pasteurised.
Environmental and health concerns are becoming more significant
More restrictive environmental legislation than currently assumed in the Outlook could have a strong impact on the dairy production projections. GHG emissions from dairy activities make up a significant share of total emissions in some countries, like Ireland and New Zealand, and more stringent environmental policies and initiatives could affect the level and nature of dairy production to curb such emissions. The growing trend towards sustainable practices such as those related to water access and manure management are associated areas where policy changes could impact dairy production. Nevertheless, stricter environmental legislation could also lead to innovative solutions that improve the sector’s long‑term competitiveness. Overall, the global level of GHG emissions from dairy production will largely depend on efficiency gains in India and other countries with high cattle populations and extensive production. In addition, extreme weather events, already experienced in some countries and regions, could aggravate the viability of milk production in the affected countries.
Plant-based dairy alternatives (e.g. soybean, almond, rice and oat drinks) have increased in popularity in many regions, especially in North America, Europe and East Asia. Available replacements have continued to expand beyond the more traditional options, branching into various sources from nuts, legumes and other crops. Key drivers of the expansion include consumer health concerns, awareness of the environmental impact of dairy production and lactose intolerance. The growth rates of plant-based replacements for dairy products are strong, albeit from a low base. The growth of plant-based dairy alternatives could be either considerably faster than included here or limited, which would result in a changing demand for dairy products.
High protein products have increased in popularity, particularly in North America and Europe. This increase in demand for high protein products such as yoghurt and cottage cheese is driven by consumer interest in health and fitness. In recent years, the growth rate of high protein products has been strong. The growth of high protein products may differ to what is assumed in the outlook depending on whether demand for high protein products grows significantly faster or is constrained more than anticipated.
Technology adoption could support greater improvements in production. Farmers have access to a wide range of technologies that can support improved milk yields and production including automatic milking systems, real time animal monitoring and decision support tools. Adoption of these technologies by major exporters is becoming more standard due to factors such as labour scarcity, lifestyle considerations and farm succession challenges. Higher levels of adoption could support greater increases in milk yields and milk production than expected in the outlook.
Dairy trade flows could substantially deviate from these projections due to changes in the trade environment. Modifications to existing trade agreements or the creation of new ones could affect dairy demand and trade flows. India and Pakistan, the big dairy consuming countries, are not expected to integrate into the international dairy market as domestic production is projected to expand fast enough to respond to growing domestic demand. New Zealand concluded free trade agreement negotiations with India in 2025, which includes tariff phase-outs for dairy-based products like infant formula but largely excludes dairy;2 similarly the EU-India free trade agreement concluded in 2026 excludes dairy.3
Another challenge the sector faces is the risk of disease outbreak. Recent outbreaks are a reminder of this threat: new outbreaks of lumpy skin disease were reported in the European Union in 2025 and 2026;4 in the United States, about 1 100 cases of avian influenza in 19 states were reported from March 2024 to December 2025.5 The risk of disease outbreaks has also been highlighted by three foot and mouth disease outbreaks in the European Union in 2026.6 As the world is increasingly inter-connected through trade, including the trans-boundary movement of animals, animal disease could rapidly spread across borders and disrupt dairy industry growth, which however, is not assumed to affect the industry in the Outlook.
References
[1] Hirsch, S. et al. (2026), “Profitability and exit decisions of organic dairy farmers in the EU”, Food Policy, Vol. 139, p. 103034, https://doi.org/10.1016/j.foodpol.2026.103034.
← 1. Fresh dairy products contain all dairy products and milk which are not included in processed products (butter, cheese, skimmed milk powder, whole milk powder, whey powder and, in a few cases, casein). The quantities are in cow milk equivalent.
← 2. For the key outcomes of the New Zealand-India FTA, see: https://www.mfat.govt.nz/en/trade/free-trade-agreements/free-trade-agreements-concluded-but-not-in-force/new-zealand-india-free-trade-agreement/key-outcomes.
← 3. EU-India Free Trade Agreement – EU agri-food exports: https://policy.trade.ec.europa.eu/eu-trade-relationships-country-and-region/countries-and-regions/india/eu-india-agreements/factsheet-eu-india-free-trade-agreement-eu-agri-food-exports_en.