Falling prices and palm oil trend raise concerns for UK dairy sector

Dairy farmers are facing mounting strain from falling milk prices and rising costs, with new analysis also warning of a growing shift away from dairy in chocolate.

The Ulster Farmers’ Union (UFU) said the first months of 2026 have proved particularly challenging, as persistent rainfall, higher diesel and fertiliser costs and farmgate milk prices below the cost of production continue to squeeze margins. Many farms remain below the cost of production.

This wider pressure is being felt across agriculture. According to Andersons, agricultural input inflation (‘agflation’) reached 7.6% in March 2026, significantly higher than general inflation (3.0%) and food inflation (3.2%).

At the same time, farm output prices have fallen by 6.5% year-on-year, leaving producers — particularly in the dairy sector — facing a clear cost squeeze.

In its latest Commodity Watch, UFU policy officer Andrew Robinson said the outlook for the coming months remains uncertain, with many producers already under significant financial pressure.

Global dairy markets have shown only brief signs of recovery. At the latest Global Dairy Trade auction on 7 April, prices fell by 3.4%, while most products on the Dutch ZuivelNL market also declined.

Robinson said the reasons behind the short-lived improvement remain unclear, warning that increasing seasonal milk supply will add further strain to an already saturated market.

Across Europe, production has surged. Germany recorded a 7% year-on-year increase in February, while France saw volumes rise by 6%.

In the UK, milk output was up more than 3% in January, with Ireland also reporting increases of over 4%, and further growth expected as the spring flush gathers pace.

Dairy farmers are also being urged to speak out on how they are being paid, as regulators examine fairness across the supply chain.

Producers are being encouraged to respond to a new survey from the Agricultural Supply Chain Adjudicator (ASCA), which is reviewing how milk pricing and contracts are working under the Fair Dealing Obligations (Milk) Regulations 2024.

The consultation comes at a time of continued volatility in the sector, with ongoing concerns around pricing, contract changes and the balance of power between farmers and buyers.

Against this backdrop of weak milk prices, the UFU has also raised concerns about changes within the wider food supply chain — particularly the growing use of vegetable fats such as palm oil in chocolate.

The shift is widely linked to cost pressures, as manufacturers look to replace more expensive dairy ingredients.

Robinson said this trend is weakening the traditional link between dairy and confectionery. What was once marketed as containing “a glass and a half of fresh milk” is now changing, with milk content in some products being reduced.

He warned the shift could have direct implications for farm incomes and long-term dairy demand.

From a nutritional perspective, Robinson said milk provides key benefits, including calcium, protein and vitamin B12, while also contributing to the texture associated with chocolate.

By contrast, he argued that palm oil is high in saturated fats and offers limited nutritional value.

The UFU warns that reduced dairy use in widely consumed products such as chocolate could lower demand for milk, increase reliance on imports and shift economic value away from rural communities.

Chocolate remains a key outlet for dairy, meaning any reduction in milk use has direct implications for farm demand.

Robinson said consumers are increasingly aware of the shift, adding that the UFU believes “milk chocolate should contain milk”.

As pressure builds, the organisation is urging greater awareness of how purchasing choices affect demand for British dairy — and the long-term viability of the sector.