August has proved particularly challenging for Ukraine’s dairy industry. In addition to the abnormal heat, which has reduced milk yields and cut overall milk volumes, retail chains have faced massive attacks on their warehousing and logistics infrastructure. As a result, some companies have lost the ability to operate as usual, directly affecting supplies from producers and contract fulfilment.

Retail chains are already trying to minimise the risks. Some want to include clauses in contracts exempting them from liability if goods are destroyed, while others are asking suppliers to make more frequent deliveries in smaller batches. Clearly, this operating model will increase logistics costs and, ultimately, affect product prices.

Another factor pressuring the market is raw milk. Prolonged heat has reduced cow productivity, leaving less milk available for processing, while producers have begun demanding higher purchase prices. Fearing shortages, milk procurement companies are once again actively competing for raw materials, driving up purchase prices while overlooking the risk of a repeat of the situation at the end of 2024, when similar competition significantly overheated the market.

For processors, this means further increases in production costs. And it is not just milk that is becoming more expensive: logistics, packaging and labour costs are all rising, while there is little reason to expect energy prices to fall in the autumn.

As a result, higher prices for finished dairy products are virtually inevitable. However, there is limited room for such increases. If fresh dairy products become approximately 15% more expensive by the end of the year and cheese prices rise by 10%, that would already be a significant outcome for the industry. The only question is whether retail chains will agree to such changes.

The problem is that milk purchase prices could rise much more sharply by winter. In such a situation, manufacturers of finished products once again risk operating for a certain period with virtually no profit or even at a loss.

Nor can the industry rely, as it did in 2024, on butter exports to offset losses. The global market improved somewhat toward the end of the summer — in Europe, almost all exchange-traded positions increased by approximately €100–200 per tonne over the past two weeks. However, the new dairy season in New Zealand is only just getting underway, and an increase in global supply could once again shift the market against producers.

In the long term, there are also few grounds for expecting dairy products to become cheaper. Global food markets are simultaneously facing high costs, the consequences of wars and weather-related risks. This situation is creating the conditions for another wave of food inflation.

Nevertheless, Ukraine can take advantage of potentially more favourable global market conditions only if it stabilises its domestic dairy production. The decline in output needs to be halted, followed by a gradual increase in production. Government support is critically important here. Increasing compensation to businesses relocating from front-line areas for farm construction to 50% is a positive step. But it is clearly not enough to restore the industry.