Milk costs: exploring the economics of producing one litre of cow milk

Agricultural markets have become increasingly volatile in recent years, with the COVID-19 pandemic, the war in Ukraine, the bluetongue virus outbreak and tensions in the Middle East contributing to greater uncertainty. Rising input prices have further increased pressure on dairy farm operations. In the first quarter of 2026 alone, fertiliser and energy prices increased by 4.2% and 5.6%, respectively, highlighting the importance of controlling production costs [1].

Accurate farm records and regular monitoring of milk production economics are essential for effective dairy farm management. Understanding milk costs, including the costs associated with producing one litre of milk, allows farmers to identify major cost drivers, evaluate management decisions and anticipate the financial impact of changes in input and milk prices.

Managing farm finances can be challenging and farmers can rely on farm advisers, accountants and other specialists to support financial and economic analysis. A clear understanding of production costs is therefore essential for informed decision-making and maintaining the economic sustainability of dairy farms.

This article explores the main costs involved in producing one litre of cow milk, examines the latest available data on milk production costs and revenues across selected European countries, and highlights the main cost drivers at farm level. It also discusses how improving resource efficiency and farm management can help reduce costs, improve profitability and contribute to more sustainable dairy production.

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What Are the Main Milk Production Costs?

To determine the total cost of milk production, dairy farmers need to consider all costs associated with farm operation, which can be divided into fixed and variable costs. Fixed costs remain relatively stable regardless of production level and include rent, loan repayments, taxes and insurance. Variable costs change according to factors such as herd size, production level, feeding strategy, fuel consumption and electricity use [2, 3]. Feed is the most significant cost, accounting for approximately 50–60% of total farm costs [4]. Since is unavoidable, improving dairy nutrition and efficiency is a key strategy for controlling production costs. Optimising nutrient supply according to animal requirements can support milk production and quality, maintain animal health and reduce unnecessary feed expenditure.

Understanding the contribution of each cost component enables farmers to identify the main cost drivers and assess how management decisions can affect the cost of producing one litre of milk.

How Much Does It Cost to Produce One Litre of Milk?

The costs of producing 1 litre of milk depend on several factors: country, region, production method, scale, feed and other factors [2].

The European Milk Board [5] regularly publishes a study conducted by BAL (Farm Economics and Rural Studies Office, Germany), which estimates milk production costs in the participating countries: Germany, France, the Netherlands, Belgium, Denmark, Ireland, Lithuania, and Luxembourg. The calculations are based primarily on data provided by the European Commission’s Farm Accountancy Data Network (FADN). In Table 1, it is presented the latest available data, showing the evolution of milk revenues, production costs and cost coverage.

Comparing the data from 2021 with 2024, the EU average milk price revenue and production costs increased by 29.7% and 11.1%, respectively. Belgium recorded the highest increase in revenue (30.5%), whereas France had the lowest (23.6%). For production costs, Lithuania experienced the largest increase (55.6%), while Luxembourg recorded the lowest (6%). France and Lithuania had the highest production costs, at 0.63 € and 0.70 €/kg of milk, respectively.

Table 1 – Milk price revenue and milk production costs in selected European countries in 2021 and 2024, including changes in revenue, production costs and cost coverage.

Source: [5]

Overall, milk production cost coverage in the EU increased from 81% in 2021 to 96% in 2024, reflecting a clear improvement in the economic position of milk production. This positive development was supported by higher farm-gate milk prices, which increased revenues, together with CAP payments that further contributed to farmers income. In 2024, milk revenues and CAP payments generated an average remaining income of €0.12/kg after paid production costs. The cost coverage calculation focuses specifically on the costs and revenues associated with milk production and therefore does not represent the overall profitability of dairy farms, which may also have other sources of income. Overall, the results indicate an improving economic position for European milk producers.

What Are the Biggest Cost Drivers in Milk Production?

When the costs of producing 1 litre of milk are broken down, as shown in Table 2, it can be observed that the highest values are associated with feeding-related activities, including purchased feed and fodder production (seeds, fertilizers, and plant protection products). Lithuania and Luxembourg had the highest depreciation costs, at 0.11 € and 0.12 €/kg of milk, respectively.

Table 2 – Breakdown of milk production costs by cost component in selected European countries in 2024.

Source: [5]

A key takeaway from the study is that, although milk production costs have increased, farm-gate milk prices have also risen, strengthening farmers revenues and improving their ability to cover production costs and margins. The continued improvement in cost coverage highlights positive developments in the economic position of milk producers. Ensuring that farmers receive fair and sustainable returns remains important, providing them with the economic capacity to invest in more sustainable production practices and supporting the long-term resilience of the dairy sector.

From Production Costs to Profitability: The Role of Sustainability

The sustainability of a dairy farm is closely linked to its productive and economic efficiency. Optimising the use of resources (like feed, water, energy and nutrients) can reduce production costs while decreasing the environmental impacts associated with milk production. In dairy nutrition, improving feed efficiency and matching nutrient supply to animal requirements can reduce nutrient losses, particularly nitrogen, while lowering the environmental footprint per unit of milk produced [6, 7]. Similarly, efficient manure management can maximise nutrient recovery as fertiliser, potentially reducing the need for mineral fertilisers [7]. Animal health, welfare and productive longevity are also important components of sustainable dairy production. Healthier and more productive cows can improve resource-use efficiency throughout the production cycle, while reducing replacement needs and production losses.

Sustainability should therefore not be viewed solely as an environmental objective, but as an integral component of overall farm efficiency. Reducing resource use and losses can simultaneously decrease environmental pressures, lower production costs and improve farm profitability.

Take home messages

Understanding the cost of producing one litre of milk is essential for effective dairy farm management. Feed represents a major component of production costs, making feed efficiency a key area for cost control. Improving resource efficiency can reduce production costs while also lowering environmental impacts, demonstrating that farm profitability and sustainability are complementary goals.

References

[1] European Commission: Directorate-General for Agriculture and Rural Development, Short-term outlook for EU agricultural markets in 2026, Publications Office of the European Union, 2026.

[2] Belloin, J. C. (1988). Milk and dairy products: Production and processing costs (FAO Animal Production and Health Paper No. 62). Food and Agriculture Organization of the United Nations. https://www.fao.org/4/x6931e/X6931E00.htm

[3] ERS USDA. (2022). Milk Cost of Production Estimates. Economic Research Service, U.S. Department of Agriculture. Milk Cost of Production Estimates | Economic Research Service. (accessed in September 7th 2026).

[4] Connor, E. E. (2015). Invited review: Improving feed efficiency in dairy production: challenges and possibilities. Animal, 9(3), 395–408. https://doi.org/10.1017/S1751731114002997.

[5] EMB. Study on the cost of milk production in Europe. European milk Board. https://www.europeanmilkboard.org/milk-production-costs.html. (accessed in September 7th 2026).

[6] de Ondarza, M. B., & Tricarico, J. M. (2017). Review: Advantages and limitations of dairy efficiency measures and the effects of nutrition and feeding management interventions. The Professional Animal Scientist, 33(4), 393–400. https://doi.org/10.15232/pas.2017-01624.

[7] Priyashantha, H. (2025). World dairy system sustainability: a milk quality perspective. Frontiers in Sustainable Resource Management, 4. https://doi.org/10.3389/fsrma.2025.1572962