Serbia’s dairy sector has once again entered a cycle of tension that exposes the fragile economics of agricultural production in a small open market. Despite large stocks of milk powder filling storage facilities and a visible surplus of dairy products in processing warehouses, farmers across the country report mounting losses as purchase prices for raw milk decline. The paradox illustrates a deeper structural imbalance within the dairy value chain: while supply exceeds processing demand, the financial burden of the adjustment falls overwhelmingly on primary producers.
The current crisis is not merely the result of a short-term market fluctuation. It reflects a set of structural dynamics that have shaped the Serbian dairy industry for years: volatile production cycles, import competition from the European Union, concentration of processing capacity in a small number of companies and the dominant negotiating power of large retail chains.
Surplus production and the role of milk powder
The immediate trigger for the present market distortion lies in the accumulation of milk powder inventories. When dairies face excess supplies of raw milk, they often convert the surplus into powder as a means of extending shelf life and stabilising storage conditions. Powdered milk can be held in warehouses for extended periods and later reintroduced into processing chains when market conditions allow.
In Serbia, however, the volume of milk powder produced during earlier periods of surplus has created a backlog that continues to affect the market today. Storage facilities remain filled with product that has yet to be absorbed by domestic demand or export markets. As long as these inventories remain high, processors have less incentive to purchase fresh raw milk from farmers.
The result is downward pressure on farm-gate prices. Dairy processors, facing full warehouses, reduce procurement volumes or lower purchase prices in order to limit new supplies entering the system.
Farm-gate prices below production costs
For dairy farmers, the decline in purchase prices represents a direct threat to economic viability. Producers estimate that the cost of producing one litre of milk has risen significantly in recent years due to higher prices for feed, energy and labour.
Many farmers argue that production becomes financially unsustainable when purchase prices fall below approximately 75 dinars per litre, a level they consider the minimum necessary to cover operating costs and maintain herd productivity.
In practice, however, the price offered by dairies often fluctuates below that threshold during periods of oversupply. When this occurs, farmers face a difficult choice: continue producing milk at a loss, reduce herd sizes or leave the sector entirely.
The pressure has already triggered protests among agricultural producers, with farmers demanding stronger government intervention in the dairy market.
Imports intensify domestic competition
Another factor influencing the dairy market is the flow of imported milk and dairy products. Serbia’s trade agreements with the European Union and neighbouring countries allow dairy goods to enter the domestic market under relatively liberal conditions.
Imported products can sometimes be offered at prices lower than domestic production costs. This is particularly the case when EU producers export surplus dairy goods or when large retail chains source products from international suppliers with lower production costs.
Farmers argue that such imports further weaken the bargaining position of domestic producers. When processors or retailers can source milk products more cheaply abroad, they face less pressure to purchase locally produced raw milk at higher prices.
The structure of the dairy value chain
The distribution of value along the dairy supply chain lies at the centre of the current crisis. Serbia’s dairy market is characterised by a large number of small and medium-sized farms supplying a relatively small group of processing companies.
This asymmetry creates a structural imbalance in negotiating power. Farmers often have limited alternatives for selling raw milk, while dairies can choose among many suppliers.
The processing segment of the industry is dominated by several large companies, including Imlek, the largest dairy processor in the country and part of the regional Moji Brendovi / Mid Europa investment group, as well as other processors such as Mlekara Šabac, Somboled and several regional dairies.
These companies operate large processing facilities that transform raw milk into a wide range of products, including pasteurised milk, yoghurt, cheese and powdered milk.
Further downstream, large retail chains exert additional influence over pricing and product placement. Supermarket groups control access to consumers and negotiate wholesale prices with processors, shaping the final margins within the supply chain.
Retail pricing disconnect
One of the most contentious aspects of the dairy crisis is the apparent disconnect between falling farm-gate prices and retail prices paid by consumers.
Farmers frequently argue that while the price they receive for raw milk declines, the retail price of dairy products remains relatively stable. This discrepancy fuels perceptions that profits are captured further along the supply chain.
Retailers, on the other hand, point to rising operating costs and competitive pressures as reasons why consumer prices do not always move in parallel with raw milk procurement costs.
The result is a complex pricing structure in which farmers bear the greatest share of market volatility.
Government subsidies and intervention measures
The Serbian government has attempted to stabilise the dairy sector through subsidies and regulatory interventions. Financial support for milk producers has increased in recent years, with direct payments intended to compensate farmers for low market prices.
These subsidies are designed to prevent a rapid decline in livestock production and to maintain rural employment in agricultural regions.
However, critics argue that subsidies alone cannot solve the structural problems affecting the dairy sector. Without reforms to market organisation and supply chain coordination, financial support risks becoming a recurring emergency measure rather than a sustainable solution.
Long-term decline in dairy herds
The economic pressures facing dairy farmers have already produced long-term consequences for the livestock sector. Over the past decade, the number of dairy cattle in Serbia has gradually declined as smaller farms exit the market.
Each cycle of price volatility accelerates this trend. Farmers who cannot maintain profitability reduce herd sizes or abandon dairy production altogether.
While such exits temporarily reduce supply and help stabilise prices, they also weaken domestic production capacity over time. The country risks becoming increasingly dependent on imported dairy products if the decline in livestock farming continues.
Agriculture’s broader economic role
The crisis in the dairy sector carries wider implications for the Serbian economy. Agriculture remains an important pillar of economic activity, accounting for roughly 6 percent of national GDP and supporting a large share of employment in rural regions.
Livestock farming is particularly important in areas such as Vojvodina, Šumadija and Mačva, where dairy production forms part of the broader agricultural economy.
A prolonged decline in dairy farming would therefore affect not only milk production but also the wider rural economy, including feed producers, veterinary services and agricultural equipment suppliers.
Market reform and producer organisation
Many agricultural economists argue that strengthening producer organisations could help address some of the structural weaknesses in the dairy value chain.
In many European countries, dairy cooperatives play a central role in negotiating prices with processors and retailers. By pooling production volumes and coordinating supply, farmers can improve their bargaining power and stabilise market conditions.
Serbia’s dairy sector remains more fragmented, with many farms operating independently. Strengthening cooperative structures could help producers negotiate more effectively with processors and retailers.
Outlook for the sector
The immediate future of Serbia’s dairy industry will depend on how quickly existing milk powder inventories are absorbed by the market and whether purchase prices for raw milk stabilise.
However, the deeper challenges facing the sector are unlikely to disappear without structural reforms. Balancing domestic production with market demand, managing imports and improving supply chain coordination will remain critical issues.
The current situation — warehouses filled with dairy stocks while farmers struggle to cover production costs — highlights the complex dynamics shaping agricultural markets.
Serbia’s dairy crisis is therefore not simply a temporary oversupply problem. It reflects the broader transformation of agricultural value chains in which farmers operate at the most vulnerable point of a system increasingly shaped by global trade, large processing companies and powerful retail networks.
