Reduction of 26,000 Tons in White Milk Quota Agreed Amid Oversupply...Raw Milk Quota Negotiations Conclude

Agreement Reached Three Months After First Meeting in June

As white milk consumption continues to decline, domestic dairy farmers and dairy processors have agreed to reduce the volume of raw milk designated for drinking purposes by 26,000 tons over the next two years starting next year. This volume will instead be allocated for processed dairy production such as cheese and butter.

According to the industry on October 1, both producers (dairy farmers) and consumers (dairy processors) reached this agreement during a subcommittee meeting on the adjustment of raw milk allocation by use, which was held by the Korea Dairy Committee the previous day. The total domestic raw milk production will remain unchanged, but the drinking milk quota will be reduced by 26,000 tons, while the quota for processed dairy use will be increased by 26,000 tons.

As a result, the drinking milk quota will be adjusted from the current 1,941,000 tons to 1,915,000 tons, and the processed dairy quota from 109,000 tons to 135,000 tons. These newly adjusted volumes will be effective for two years from 2027 to 2028. One of the negotiation topics, the price of raw milk, has been frozen at 1,084 won per liter for drinking use and 882 won per liter for processed dairy use, as the criteria based on changes in production costs as of May this year were not met, and both sides have focused on negotiating the volume instead.

With the introduction of a differentiated pricing system by usage in 2023, the Korea Dairy Committee adjusts the allocation every two years and facilitates negotiations among stakeholders. The differentiated pricing system is a system that sets the price of raw milk differently according to its end use. The subcommittee was attended by representatives from the Korea Dairy Committee, three producer representatives, and three consumer representatives.

This agreement was reached three months after the first meeting held on June 30. Both sides acknowledged from the early stages of negotiation that the current market situation, with declining white milk consumption, falls under "Excess Zone 1," where the overage rate exceeds 5%, requiring a reduction in drinking milk volume. However, due to significant differences over how to calculate the excess quantity, the negotiations lasted longer than expected. The dairy processors argued that calculations should be based on the drinking milk quota according to the rules, while the dairy farmers insisted on using last year's actual purchased volume as the standard.

At the final agreement, rather than strictly adopting either side's standard, the reduced amount was determined as an intermediate value between the two proposals. An industry official commented, "While neither side is fully satisfied, it is meaningful that both sides agreed to an adjustment within the expected range."

The differentiated pricing system was introduced to enable a dual pricing structure reflecting changing consumption patterns of white milk. Before this was introduced in 2023, dairy processors purchased raw milk from dairy farmers at a uniform price regardless of usage. However, with demand for drinking milk falling and demand for processed dairy products such as cheese, butter, and ice cream rising, the system was implemented.

Nevertheless, as the shift in consumption patterns accelerated, dairy processors argued that the drinking milk quota remained higher than actual demand while the processed dairy quota was insufficient, so adjustment was needed. On the other hand, dairy farmers countered that processors were using the system to increase the use of lower-priced imported dairy products, and that their actual purchases from farmers fell below their quota allocations.

According to the Korea Dairy Committee, last year per capita annual white milk consumption was recorded at 22.9 kilograms. This represents a 9.5% decrease from the previous year and an 18% drop compared to 2016 (27 kilograms), ten years earlier. It is the lowest level since the late 1980s when consumption of white milk began to rise in earnest. In 2021, the volume of raw milk used for drinking was 1,753,481 tons, but this fell by 8.3% last year to 1,607,678 tons. In contrast, the volume designated for processed dairy use increased by 22.2% over the same period, reaching 343,305 tons last year. The share of drinking-use raw milk in the total raw milk production also dropped by 3.8 percentage points, from 86.2% in 2021 to 82.4% last year.

This content was produced with the assistance of AI translation services.