As declining birth rates and changing dietary habits exacerbate the drop in milk consumption, negotiations between dairy farmers and the dairy industry over the scale of production cuts for drinking milk set to take effect next year are facing significant challenges. Both sides agree on the need for reductions, but they have been unable to narrow their differences regarding the standard production amounts, leading to ongoing discussions as the end of the month deadline approaches.
According to the Korea Dairy Promotion Association, a subcommittee involving producers and the dairy industry is currently negotiating adjustments to the milk production amounts for various uses for 2027-2028. The negotiations, which began on June 30, were initially expected to conclude by the end of July, but have been extended to the end of this month due to a lack of consensus.
The crux of the negotiations centers on how much to reduce the drinking milk production amount. Under the differentiated pricing system, raw milk is categorized into drinking milk and processed milk, which includes cheese and powdered milk. The current standard production amount for drinking milk is set at 1.941 million tons annually. While both the dairy industry and farmers agree on the necessity of reducing this amount, they differ on the baseline for calculating the reductions.
The dairy industry argues that reductions should be based on the current standard amount of 1.941 million tons. In contrast, dairy farmers contend that the baseline should be the approximately 1.89 million tons actually purchased by dairy companies last year. This creates a discrepancy of about 50,000 tons between the standard amount and actual purchases.
Applying the proposed reduction rates discussed by both sides would widen this gap even further. If the excess production amount (1.797 million tons) is excluded, and the excess reduction rate (10-30%) is applied, the dairy industry’s proposed baseline would require a reduction of approximately 14,400 to 43,200 tons. Under the farmers' proposed baseline, the reduction would be about 9,300 to 27,900 tons. Depending on the reduction rates, the difference in the amounts each side advocates could reach as high as 15,300 tons.
The need for production cuts has become more pressing due to a prolonged decline in milk consumption. According to the Korea Dairy Promotion Association, the per capita consumption of milk in the country fell to 22.9 kg last year, down 2.4 kg from 25.3 kg the previous year. Compared to 27 kg in 2016, this marks a decrease of 4.1 kg over the past decade. The decline is attributed to a decrease in the primary consumer demographic of infants and school-age children due to low birth rates, coupled with changing dietary habits.
The dairy industry argues that, given the actual decrease in consumption, the mandatory purchase amounts for drinking milk should be adjusted to reflect market conditions. Purchasing more raw milk than demand necessitates converting excess amounts into powdered milk, which incurs losses and inventory burdens. Additionally, the increasing market penetration of relatively cheaper imported sterilized milk and dairy products adds to the industry's challenges.
Farmers, however, have a different perspective. They argue that with actual purchases already about 50,000 tons below the standard production amount, further reductions based on the 1.941 million tons would be excessive. They point out that the price for drinking milk is 1,084 won per liter, which is higher than the price for processed milk at 882 won. As the quota for drinking milk is significantly reduced, the payments farmers receive for raw milk will inevitably decrease. There are concerns that drastic production cuts could further weaken the domestic raw milk production base, especially as production costs rise and the number of dairy farmers declines.
In the previous negotiations, the drinking milk production amount was reduced once. In the 2024 negotiations, the drinking milk amount for 2025-2026 was cut from 1.95 million tons to 1.941 million tons, a reduction of 9,000 tons. In exchange, the processed milk amount was increased from 100,000 tons to 109,000 tons, also by 9,000 tons.
This time, the ongoing decline in milk consumption has heightened the need for additional cuts, but the conflicting interests surrounding the reduction standards have prolonged the negotiations. If the subcommittee reaches an agreement by the end of this month, the proposal will be subject to approval by the board of the Korea Dairy Promotion Association, with new production amounts expected to take effect in January.
* This article has been translated by AI.
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