Some of Europe’s largest dairies are joining forces in a bid to ensure their long-term financial sustainability – with tight margins and flat to low milk production gains continuing to drive consolidation activity in the sector.
While farmers enjoyed strong profit margins in Q1 2025, much uncertainty remains over how the market would adapt to the potential shock of 50% tariffs on goods shipped to the US.
Regulation is also posing question marks. The EU considering the introduction of stricter water quality policies, which could impact the permissible nitrate levels and hit farmers in the pocket.
Specifically, Ireland’s dairy industry – which has so far secured exemptions from the EU’s nitrate derogations – could be forced to reduce its dairy herd by 18% if the EU presses ahead with a stricter water policy; in turn, reducing Europe’s milk by 1.6 billion kilograms, Rabobank estimates.
In Q1 2025, milk production declined in the EU, driven by a decrease in dairy cow numbers in North Western Europe.
Arla, DMK merger hinges on regulatory approval
In April 2025, the two co-operatives announced merger plans that, if completed successfully, would create a joint entity that eclipse the size of the FrieslandCampina-Milcobel merger (more on that below).
The boards of the two co-ops have now approved the merger plan and the deal will submitted to the European Commission for approval.
If there are no antitrust issues, Arla expects the merger to complete in Q1 2026 – a timeline that a RaboResearch analyst has dubbed ‘optimistic’.
“Arla anticipates that competition authorities will approve the merger by December, but given the need for individual national approvals, this timeline may be optimistic,” said Mary Ledman, Global Dairy Strategist.
Arla and DMK will continue to operate independently until after the merger is formally completed. The dairy co-ops have a combined revenue of nearly €19bn and produce 19 billion kg of milk per year. Some 12,200 dairies will be united under a single organization if the merger succeeds.
In the combined organization, Arla will absorb the DMK brand and the new entity will be led by Arla chair Jan Toft Norgaard and Arla CEO Peder Tuborgh, with DMK’s CEO Ingo Muller joining the executive management team as EVP.
DMK is the largest milk processor in Germany, itself a crucial milk-producing country responsible for a fifth of the bloc’s raw milk production. Formed in 2011 through the merger of co-ops Humana Milchunion and Nordmilch, DMK acquired a majority stake in ice cream firm Rosen Eiskrem in 2013 and bought Dutch cheese producer DOC Kaas in 2017.
In FY24, the group posted increased net profit of €24.6m (+€11.4m) but recorded negative cash flow (-€54.8) in the period.
The co-op has shifted its focus to high-margin areas, such as cheese and foodservice. It invested in a new cheese aging warehouse in the Netherlands and optimized its Mirlam branded portfolio, including by ramping up cottage cheese production by 30% to capture consumer demand for high-protein dairy.
Did you know?
Germany, France, Poland, the Netherlands and Italy together provide around two-thirds of the EU’s raw cows’ milk, according to Eurostat.
CEO Ingo Muller described the economic climate of the past year as ‘tense’, adding that inflation, geopolitical conflicts and an unstable consumer market are all impacting the business.
“Milk production in Germany and Northern Europe is declining as a result of ongoing structural change in agriculture,” he said. “The outbreak of bluetongue disease last summer then further exacerbated the drop in milk volumes, in some cases. On the other hand, dairy markets proved more robust than many expected as the year progressed.”
He added that the merger with Arla would allow DMK to achieve its long-term strategic objectives ‘in one decisive step’. “We’ll no longer be competitors but a joint cooperative dairy with combined strength. Together, we’ll be a powerful home for our farmers and a leading player in the dairy sector,” Muller said.
FrieslandCampina, Milcobel yet to agree on merger details
Announced at the tail end of 2024, FrieslandCampina and Milcobel also intend to merge. The two co-ops were meant to have agreed a detailed merger proposal in H1 2025, but are still ironing out the finer details, we learned.
It’s also unclear when the proposal will be submitted to the EU competition authority for approval.
A FrieslandCampina spokesperson told us more about the co-ops’ motivation to form with Milcobel a combined entity of around 11,000 farms and €14bn in revenue, reflecting on broader industry trends.
“We face several structural and market related challenges - these include declining milk volumes in our region, increasing regulatory and sustainability requirements, volatile global demand, and rising production costs,” the spokesperson said.
“We are also seeing a growing number of farm closures, driven by an ageing population of farmers and ongoing uncertainty regarding the future of the sector, which further challenges the continuity and resilience of the dairy supply chain.
“Our proposed merger with Milcobel reflects a proactive response to these dynamics, ensuring we remain a strong, co-operative-led organisation capable of delivering value to our members and customers alike.”
The merger would enhance the two dairies’ scale, resilience, and market reach, the spokesperson said.
“It strengthens our position in key product categories such as consumer cheese, mozzarella, white dairy, and whey ingredients. The combined entity benefits from complementary portfolios, optimized logistics, and shared innovation capabilities.
“In the short term, we expect synergies, particularly in mozzarella and branded cheese. Over the longer term, the merger supports sustainable growth and improved milk valorisation across our portfolio.”
Milcobel’s FY24 annual report has not been published yet (July 10, 2025), but the co-op shared that it realized a turnover of €1.3bn, similar to its 2023 result, and a pre-tax profit of €4.1m (after a loss in 2023).
It offloaded ice cream manufacturer YSCO in January and has been adhering to a strategy of increased organizational efficiency, cost-consciousness, targeted investments, and a focus on products with added value.
In FY24, FrieslandCampina achieved an operating profit of €527m, compared to €75m a year before driven by higher dairy commodity prices and stronger margins. Cost reductions in the period were also crucial: the co-op saved €315m through eliminating almost 1,400 jobs and has made strides in supply chain efficiencies.
While the co-op’s European brands were under pressure, the company’s diversification strategy continued to pay off: its specialized nutrition brands gathered pace, with the Friso infant nutrition brand improving its market position in China.
The co-op also recorded an increase in the volume of adult nutrition sales part of its Ingredients business, and an improved performance with natural cheese in the Retail & Americas business group - a reversal after years of growth in cheaper basic cheese, the co-op noted.
The Professional & Trading business also improved its results thanks to higher cheese and butter prices in the period.
Dairy farming: A family affair
While industry consolidation is seen as crucial to supporting dairies’ long-term profitability, concerns about how the roles of individual farmer producers will evolve within the combined businesses remain.
These are linked to both participation in the supply chain and in the co-ops’ decision-making process.
Resolving such concerns transparently will be crucial for the merged organizations, whose members would otherwise stand to benefit from improved milk prices. The combined dairies should also be better equipped to respond to shifting market and consumer dynamics and to tackle environmental challenges, such as Europe’s hotter climate.
Among other factors, supporting generational transition will also be crucial for the co-ops’ long-term viability. In 2020, most EU dairy farm managers were aged 55 or older (57.6 %) and only 12% were under 40, according to a recent European Parliamentary Research Service report. Many EU member states show a notably high proportion of farmers aged 65 or older, too.
And there’s no escaping that dairy farming remains largely a family affair. In 2020, approximately 86.1 % of ag workers were either the primary farmer or part of the farmer’s family.
How well Europe’s two new mega dairies would balance corporate efficiencies with their member suppliers’ interests remains to be seen - with both challenges and opportunities abound.