Milk Wars: Global Dairy Market Faces a Tariff-Driven Reset

The global dairy market in 2025 is in a state of flux. Shifting trade policies, changing production trends, and unpredictable consumer demand are altering supply chains and reshaping pricing dynamics. Tariffs imposed by the United States have triggered a round of retaliatory actions, forcing dairy exporters across regions to adapt quickly. The United States, European Union, and Oceania—three of the largest dairy-producing regions—are all feeling the impact. 

United States: Tariffs Bring Domestic Tension 

In April 2025, the Trump administration introduced new tariffs: a 10% baseline on all imports, 20% for EU goods, and 104% on Chinese goods. Australian exports were also hit with a 10% tariff. The stated goal was to correct trade imbalances and protect U.S. industries. But the consequences for dairy have been significant. 

Production: Growth Meets Resistance 

U.S. dairy production was growing at the start of the year. The national herd expanded by 30,000 head, and milk output was projected to rise by 0.3 billion pounds. 

That growth is now under pressure. Rising costs for feed, fertilizer, and equipment — much of it imported — are squeezing margins. Large producers have absorbed much of the impact so far. But smaller and mid-sized farms are showing signs of strain, and some may pull back production in the second half of the year. 

Demand: Stable, but Prices May Rise 

Consumer demand has remained steady. But higher input costs are likely to drive prices up. One estimate suggests the average U.S. household could face $3,800 in added expenses due to tariffs. That could reduce discretionary spending, including on premium dairy. 

Meanwhile, retaliatory tariffs from trading partners threaten U.S. exports. This could create oversupply and push down farmgate milk prices — hurting farmer profitability. 

European Union: Retaliation and Internal Constraints 

In response to U.S. tariffs, the European Union announced countermeasures targeting a broad range of American products — maize, wheat, motorcycles, clothing — valued at roughly €21 billion. These tariffs will be phased in across several dates in 2025. 

Also Read: Trump Tariffs: Implications on Trade and 5 Key Supply Chains Strategies to Navigate Them 

Production: Modest Growth, Structural Risks 

The EU dairy sector expects a 0.5% year-on-year increase in output. January milk prices were 20% higher than the year before, which supported strong producer margins. Still, there are structural issues. Herd sizes continue to decline in some member states. The return of the Bluetongue virus is also a concern. These factors could limit production gains later in the year. 

Demand: Market Pressure Builds 

The EU specializes in high-value dairy products, which are somewhat insulated from global price shifts. But U.S. tariffs on EU dairy—especially on cheese and specialty exports—could limit access to one of its key markets. If exports slow, surplus products may flood the internal market. 

That could lead to lower prices, especially for cheese and butter. In response, EU exporters are turning to emerging markets in an effort to maintain sales momentum. 

Oceania: Regional Competition and Export Realignment 

Australia was hit with a 10% U.S. tariff affecting $23.9 billion in goods. Though New Zealand wasn’t directly targeted, its exposure to global trade means it is still feeling the effects of the shifting landscape. 

Production: Australia Grows, NZ Slips Slightly 

Australia’s dairy production is expected to rise by 1.1% in 2025, reaching 8.8 million metric tons. Favorable weather and better margins are helping recovery. New Zealand’s output, by contrast, is projected to decline slightly to 21.3 MMT—just under its five-year average. 

To offset volume pressure, New Zealand is focusing more on high-value products such as infant formula and specialty cheeses. 

Demand: Export Competition Intensifies 

With U.S. access now more limited, Australian producers are targeting Asia and the Middle East. These are the same markets New Zealand relies on. As both countries compete for share, prices for bulk commodities like whole milk powder and butter could come under pressure. However, the growing emphasis on premium products may help both nations manage the risk of falling commodity prices. 

Global Outlook: Volatile and Uncertain 

The global dairy market is under strain. Tariff-driven disruptions are altering traditional trade flows. Some countries may find opportunities to step into new markets, while others face oversupply and falling prices. 

The International Dairy Foods Association has warned that if these trade tensions continue, they could cause lasting harm to U.S. dairy farmers and rural communities. 

What comes next will depend on how long the current standoff lasts—and how fast producers can adapt to new market realities. 

Author: Jaydip Katkar 

Find more such insights on the GEP Tariff Management Resource Center 

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