The Korea Dairy Committee said on the 1st that raw milk producers and dairy processors have agreed to cut the volume allocated for drinking milk by 26,000 tons and expand the volume designated for processing use. The adjustment reflects shifting dairy consumption patterns, including declining milk consumption.
Under the change, drinking milk volume will fall to 1.915 million tons from the current 1.941 million tons. Processing volume will rise to 135,000 tons from 109,000 tons. Because each category moves by 26,000 tons, the combined total remains unchanged. Drinking milk refers to raw milk used to make plain milk as well as flavored milk such as chocolate and strawberry varieties, fermented milk drinks and coffee beverages. Processing milk is used for dairy products other than drinkable items, including cheese and powdered milk. The agreement was finalized after approval by the Korea Dairy Committee board on the 30th of last month.
Raw milk volumes by use are set every two years through negotiations between producers and processors. The two sides establish a negotiating range based on drinking milk purchases and actual usage, then adjust volumes in light of market conditions. The newly confirmed volumes will apply for two years, from January next year through the end of 2028.
The talks were handled by a seven-member subcommittee consisting of one representative from the Korea Dairy Committee, three directors from the producer side and three from the dairy industry. After 11 rounds of negotiations, the two sides agreed to move part of the drinking milk volume to processing use to reflect the change in consumption patterns. Producers emphasized management difficulties stemming from rising production costs, mounting debt and a growing number of dairy farm closures, while processors pointed to the inventory burden caused by falling consumption.
The agreement gives some relief to dairy processors, which have absorbed surplus raw milk and inventory costs as milk consumption declines. Even when demand for drinking milk falls, companies must take in their allocated raw milk, so they have processed the excess into powdered forms such as milk powder and sold it as an industrial ingredient. But domestic raw milk costs more than twice as much as imported milk, eroding price competitiveness and adding to inventory pressure, according to the industry.
The industry estimates actual demand at about 1.61 million tons, compared with the drinking milk benchmark of 1.941 million tons, leaving more than 300,000 tons in excess supply each year. "We are processing the excess raw milk into skim milk powder, but the selling price is below the manufacturing cost, so we are taking losses," an official at a dairy processing company said. "Additional processing costs are involved, and domestic raw milk is more expensive than imported milk, so price competitiveness is weak. Reducing the drinking milk volume can ease some of the inventory and cost burden on dairy companies."
Separately, the base price of raw milk was not negotiated this year. Milk production costs released by Statistics Korea had not moved by the 4% threshold, up or down, on a cumulative basis since the previous negotiation, which is the condition for triggering price talks.
