The future of global dairy? Summary:
- Global dairy enters 2026 in oversupply, with record milk output continuing to pressure prices and margins worldwide
- Demand for commoditised dairy is stalling in mature markets, while emerging markets still offer volume growth opportunities
- Natural dairy protein is driving standout growth, fuelled by health, satiety and GLP‑1‑influenced eating habits
- Functional dairy, especially gut‑health products like kefir and cultured yoghurts, is attracting premium demand
- The strongest growth in 2026 will come from value‑added dairy positioned around health, functionality and lifestyle
Booming production volumes have tipped many international dairy markets into oversupply, as record output coupled with flat demand weighs heavily on price.
Facing up against this ‘wall of milk,’ many producers, processors and manufacturers have been left battling to regain profitability in a thoroughly destabilised dairy market.
So, how can they regain a foothold in 2026? How can they diversify and stimulate demand? And, in particular, what role might consumer interest in natural, functional products play in helping the sector to stand out and build margin in a heavily commoditised category?
The global dairy oversupply
Oversupply in global dairy has created significant pressure on prices.
Late 2025 saw production hit record highs, with combined milk supplies from the seven major exporters (the EU, US, New Zealand, Australia, Brazil, Argentina and Uruguay) at volumes 2.2% ahead of 2024, according to Rabobank, as a result of expanded herds and high production efficiencies.
This was combined with flat or waning demand in some markets.
In Western countries like Europe and the US, a steady rise in concerns about the health and ethics of dairy consumption, particularly among younger generations, has nudged many consumers toward dairy-free alternatives, driving down per capita consumption. Between 1975 and 2024, per capita milk consumption in the US, for example, dropped by 47%, according to USDA data.
In China too, where a drive toward self-sufficiency has seen milk output surge to nearly 42 million tons as of 2023, according to data from its agriculture ministry, a sluggish economy and ageing population has dampened anticipated demand for higher-priced foods like cheese, cream and butter.
As a result, global milk prices fell for the seventh consecutive month in December, according to the IFCN Dairy Research Network, down by 2.2% – a downward trend that kicked off in June 2025. Butter also hit a 24-month-low, and demand for milk powders was subdued, while cheese provided a small bright spot, with demand buoyed by a seasonal sales uplift.
It isn’t all doom-and-gloom, however…
According to the UK’s Agriculture and Horticulture Development Board (AHDB), import demand for dairy across both Asia and Africa is expected to rise in the coming years, driven by growing populations and rising incomes. Russia, Mexico and the North Africa (NENA) region are also likely to see continued growth in dairy imports and, despite the current slowdown, China is expected to remain the world’s largest importer of cheese, butter, and skimmed milk powder (SMP).
“Much of global dairy expansion is now coming from emerging markets, where rising incomes, urbanisation and changing food habits are expanding both consumption occasions and category repertoire,” says Rogerio De Almeida Prado Guimaraes, vice president, global dairy & BBC, Taste at IFF. “In these markets, dairy is still being ‘built,’ not traded down.”
Plus, though demand for liquid milk and more commoditised dairy items may be hitting a wall in established markets across Europe and North America, there remain fast-growing opportunities for higher-margin, premium products that tap into a surge in interest in areas like functional food, natural protein sources and gut health.
“The global dairy market remains resilient, despite cost pressures, driven by sustained consumer demand for high‑protein, functional, and indulgent dairy products,” says Catherine Bayard, global product manager for protein at Givaudan Taste & Wellbeing. “From milk and yoghurts to ready-to-drink protein beverages, the category continues to play a central role in daily nutrition thanks to its balance of taste, texture, and nourishment.”
By capitalising on these consumption trends and diversifying portfolios, many dairy manufacturers are still finding global dairy is rich with opportunities for growth in 2026.
Natural protein opportunity
Amid pushback against more heavily processed protein sources, dairy is becoming increasingly sought after as a natural alternative in Western markets.
“Protein continues to sit at the centre of the healthier eating trend,” says Estelle Alley, UK category manager at Bord Bia. “But interest is no longer confined to gym-goers or athletes – it’s reaching a much broader audience. From busy professionals to ageing populations focused on muscle maintenance, consumers are actively seeking accessible, high-quality protein in everyday formats.”
Dairy is well-positioned to meet this need. According to Arla Foods Ingredients, supermarket sales data shows that, in 2024, US sales of products with a high dairy protein content grew by 17%.
Cottage cheese has been one major beneficiary of this behavioural shift, with American cottage cheese sales up 16% by value and 11% by volume in 2024, say Arla. In Sweden too, cottage cheese sales grew 30% over the past year, with a 40% growth surge in the UK.
At Scottish Graham’s Family Dairy, which has a portfolio spanning milk, yoghurt, butter, ice-cream and kefir, this demand for natural protein sources has driven a “real resurgence in categories like cottage cheese and other protein-rich dairy, reflecting a broader move towards simple, less processed foods that fit easily into everyday routines,” says managing director Robert Graham.
“We’ve seen that momentum across our full range,” he adds. Its organic and unhomogenised Gold Top milk, for example, has “performed particularly strongly as consumers look for natural, trustworthy products and at the same time, demand for our higher-protein lines, such as cottage cheese, is booming – so much so that we’re making significant investments in both our production facilities and our team to keep pace”.
These trends are mirrored across the international markets it serves, Graham says, with a particular preference for dairy products that emphasise provenance as a shorthand for credibility and quality.
“Scottish produce carries such strong associations with quality, freshness and care,” he claims. “It’s why our ranges are now stocked with retailers such as Spinneys in Dubai, as well as select stores across Oman, Hong Kong and Saudi Arabia.”
The proliferation of GLP-1 drugs for weight loss could act as a further catalyst on demand meanwhile, as users actively seek out nutrient-dense, high protein meal options.
“The recent wave of GLP-1-linked weight‑management routines is quietly influencing food choices: consumers are prioritising satiety, portion awareness, and nutrient density,” says Bayard. “Many consumers under GLP-1 medication are re‑evaluating meal patterns, leading to stronger demand for high-protein, low-sugar, balanced-calorie dairy formats. This shift supports steady growth for protein‑fortified milks and yoghurts that deliver sustained energy without compromising taste.”
Functionality in dairy
Products geared toward gut health is another key growth lever for global dairy.
According to contract research organisation Magnitude Biosciences, search for gut-health related terms spiked in 2024, with searches for ‘gut health’ alone up 35%. Globally, the global digestive health products market is skyrocketing, now worth $116.9bn, with a CAGR of 8.74% - and dairy is ideally positioned to respond.
“Gut health is a clear gateway,” says the IFF’s De Almeida Prado Guimaraes. “Nearly 60% of global consumers who are aware of microbiome say it has already changed their eating habits, making fermented dairy one of the most intuitive platforms for this benefit.”
The market for kefir, for example, a fermented milk drink that is potent in gut-friendly probiotics, is expected to be worth $3.45bn by 2030, according to MarkNtel Advisors, up from a little over $2bn in 2023, as consumers proactively seek out products that support gut health but are easy to integrate into everyday consumption habits.
“At Biotiful Gut Health, we continue to see the biggest opportunities in building the association of kefir as being one of the best natural gut health solutions giving this trend is definitely not going away,” says the brand’s chief marketing officer Vince Lawson. “Its versatility and the ease of just swapping regular yogurt to kefir which boasts a greater diversity and abundance of live bacteria, is easy for consumers to do.”
In the last year, the brand has launched its Kefir Protein Shakes, with 20g of “naturally derived protein” and billions of live cultures. “This was the first Kefir Protein product for us to launch alongside our truly unique Kefir Protein 250g spoonable range,” says Lawson.
It’s one of a swathe of recent gut health launches in dairy. California-based Alexandre Family Farm, for example, debuted its A2 probiotic sour cream in 2024 to “support a healthy, gut microbiome.” Arla Foods unveiled its Arla Cultura range for the UK in 2025, a new range of lactose-free, gut-health-focused yogurt pots and dairy drinks that is already established in in Denmark, the Netherlands and Sweden. And in January, shelf-stable yoghurt Yogoody secured a listing with health retailer Holland & Barrett. Its powder format delivers a yoghurt-style drink that delivers the benefits of fermented dairy in a “more flexible, convenient format,” say the brand.
The future of global dairy
Though global dairy continues to face a difficult balancing act between supply and demand, the opportunities for specialist or premium innovation that taps into demand for health, naturalness and functionality provides a way through for the category – and a clear dividing line with more commoditised lines.
“Global dairy remains fundamentally resilient, but it is becoming increasingly polarised,” says Patrick Young, managing director at PRS IN VIVO. “Core staples such as milk and block cheese are more exposed to price sensitivity and private label competition, particularly in markets where household budgets remain stretched. At the same time, value-added dairy is performing strongly.”
As a result, for Young the “biggest opportunities” in the years ahead will remain within functionality and premiumisation, be it protein-rich SKUs that emphasise naturalness, products that meet the need for satiety and portion control from a growing cohort of GLP-1 users, or those positioned as great options for a healthy gut.
Ultimately, “the winners will be those who make dairy feel less like a staple and more like a strategic lifestyle choice.”