The dairy industry enters early 2026 with far more restrained expectations than a year ago. At the same time, the results of 2025 provide grounds for speaking of the sector’s resilience. Despite the war, energy risks, and an unfavourable external environment, agricultural enterprises significantly increased milk production. Higher yields and a growing dairy herd indicate that talk of a potential production decline by tens of per cent is more a reflection of price pressure than a realistic forecast.

Milk processing also expanded in 2025, primarily due to increased raw milk supplies from agricultural producers, and this became a key factor supporting the market. However, the structure of milk utilisation is increasingly shifting toward butter and dried dairy products. If last year these products were profitability drivers, by the beginning of 2026, they had become problematic due to a sharp deterioration in global price conditions. In a situation of raw milk surplus, processors are effectively forced to seek an outlet in expanding exports, even at minimal margins or even losses.

Exports in 2025 were an unquestionable success for the industry: record volumes and foreign currency revenues enabled the sector to offset the weakness of the domestic market. However, this path will be more difficult in 2026. Quotas and licensing reinstated by the EU, growing competition in post-Soviet markets, and the aggressive pricing policy of Belarusian producers significantly limit further growth opportunities. At the same time, imports, primarily of cheese, continue to put pressure on Ukrainian processors and remain one of the key risks for the domestic market.

The raw milk market is entering a phase of correction. Excess supply, falling prices in Europe, and weak demand for exchange-traded dairy commodities create conditions for a further decline in farm-gate prices. Companies focused on the domestic market for finished products are currently in a better position than exporters of bulk commodities.

Despite the overall pessimism, there is no reason for panic. The global dairy market remains highly volatile, and geopolitical factors can quickly change the balance of supply and demand. Ukrainian producers still have opportunities to earn from exports, while farmers can defend economically justified milk prices. The key task for 2026 will be adaptation to the new reality: diversification of sales markets, a cautious pricing policy, and the search for a balance of interests between raw milk producers and processors.

Particular attention should be paid to the situation in the key product segments, primarily butter and cheese, which today effectively determine the industry’s financial performance.

Butter remained the primary market driver in 2025. High export prices in the third quarter of 2024 and the first half of 2025 ensured record farm-gate prices for raw milk and overall high profitability for producers. By the end of the year, butter exports reached their highest level since 2019, and the weighted average export price significantly exceeded the averages of previous years. However, the fourth quarter clearly demonstrated the model’s vulnerability: a sharp drop in global prices made butter production unprofitable, while the domestic market was unable to compensate for losses from shrinking exports. In 2026, producers will have to operate under strict EU quotas, weak demand, and intensified competition from Belarus. This means that the search for new markets in Asia and Africa is no longer just an alternative but a necessity.

The cheese manufacturing remains the most problematic part of the dairy complex. In 2025, most cheese producers at best managed to maintain production volumes. Growing imports, primarily of hard and semi-hard cheeses from the EU, are effectively eroding the domestic market’s potential. Even without a sharp surge in imports, current volumes are already equivalent to the output of several Ukrainian plants from the top five producers. Cheese exports have grown, but too slowly to offset pressure from imported products. No radical improvement is expected in 2026 unless there is a significant devaluation of the hryvnia or changes in trade policy.

At the same time, cheese products and processed cheeses are showing much better dynamics. Producers in these categories have benefited from favourable external conditions and growing exports. For many companies, these products are becoming essential tools for capacity utilisation and financial stability.

Specific positive signals are also emerging in the whey market. Unlike many other exchange-traded dairy products, this product’s prices remain pretty high. Nevertheless, this market remains extremely volatile and highly dependent on conditions in the EU and US markets.

Overall, 2026 will be a year of tough adaptation for the dairy industry. Easy money, as in the first half of 2025, is no longer available. The winners will be those companies that can manage their product mix flexibly, quickly redirect export flows, and operate with minimal margins without losing control over costs. This strategy currently appears to be the most realistic for the Ukrainian dairy business.

In addition to butter and the cheese segment, it is vital in 2026 to separately assess the situation in powdered milk, fresh dairy products, and canned condensed milk, as these segments are increasingly influencing the balance of the raw milk market.

Powdered milk, primarily skimmed milk powder (SMP), was one of the key export products in 2025 and, together with butter, helped utilise surplus raw milk. However, at the start of 2026, this segment is under severe pressure. Global prices have fallen to levels close to or even below production costs. At current prices, the economics of drying look extremely weak, and the production of dried milk is increasingly becoming a forced market-balancing tool rather than a source of profit. Nevertheless, in 2026, dairy plants will have to increase SMP production and exports, possibly at the cost of further declines in raw milk prices, however unfortunate this may be.

Fresh dairy products remain the most stable segment of the industry. The domestic market for fresh dairy products currently supports processors focused on the end consumer. At the same time, domestic demand remains limited, and sales growth is increasingly driven by promotional activity rather than underlying price increases. Prospects for production growth in this segment in 2026 are partly linked to exports. Initial successes in EU markets, particularly in Germany, Bulgaria, and Romania, show potential, but scaling up will require investment in logistics, certification, and brand promotion.

Canned condensed milk stands out positively against the general background. In 2025, this segment demonstrated export growth and maintained attractive profitability even under difficult market conditions. A seasonal decline in domestic demand traditionally accompanies the beginning of 2026, but export shipments, primarily to EU countries, remain active. The price situation is relatively stable, allowing producers to plan operations without sharp adjustments. In the near term, condensed milk may remain one of the few segments where Ukrainian companies can operate with predictable margins.

In summary, dried milk, fresh dairy products, and canned condensed milk respond differently to the challenges of 2026, but together they will determine how effectively the industry can process growing volumes of raw milk. Flexible management of these segments will be critical to maintaining the dairy business’s financial sustainability.