Hammer analysis | Organic excellence in the regulated Danish dairy sector

Key insights

• Denmark is among leading EU milk producers in terms of yield with 10,700 kg milk per cow
• Danish dairy sector is characterized by high share of organic farming
• Legislation is a crucial topic influencing the future of Danish dairy farmers
• Despite overall concerns, almost half (43%) of Danish dairy farmers intend to invest

Danish dairy sector ‍

Denmark has a professional and efficient dairy sector, producing 5.64 million metric tons of milk last year. This volume was produced by 547,000 milking cows, distributed over 2,312 Danish dairy farms (Danish Dairy Board, 2023). A Danish farmer has an average herd size of 236 milking cows, which is way higher than the average European dairy farm size of around 50 milking cows. The considerable size of Danish dairy farm practices is also reflected by the large majority of farmers (~80%) with a herd size of more than 100 milking cows. The latter shows a stark contrast between dairy farm practices in countries like Brazil where a lot of farms with small herd sizes (<30 cows) are situated (IFCN, 2023).

The Danish dairy sector is known for its high level of productivity and efficiency. The average yield per cow is approximately 10,700 kilograms of milk over the last year and these high levels resulted in Denmark topping the European yield charts in 2022 (DanishDairy Board, 2023; EuroStat, 2024). In comparison, other professional dairy countries like the Netherlands and Germany reached a milk yield per cow of roughly 9,200 and 8,800 kilograms respectively in 2023 (CBS, 2024; Statista, 2024).

Another key characteristic of the Danish dairy sector is the substantial size of organic farming practices, which has shown a steady growth over the past decade. Around 15% of all dairy farmers are engaging in organic farming and they produce 33% of all liquid milk in Denmark (Danish Dairy Board, 2023). Denmark is way ahead of other leading dairy countries with respect to the scale and production levels of organic farming practices. For example, in the Netherlands not even 5% of dairy farmers engage in organic farming (Agrimatie, 2023).

An important driver behind the high share of organic farmers is the Danish-Swedish dairy cooperative Arla Foods, which is the largest producer of organic dairy in the world (Arla Foods Group, 2024). Next, it is important to note that Danes are global leaders when it comes to buying organic products, with a fifth of its bio-consumption being dairy products (Made in Nature, 2023). Additionally, around 30% of milk consumed in Denmark is labelled as organic (Nieuwe Oogst, 2024). Lastly, there exists a long-standing history of Danish policies stimulating the production and consumption of organic foods through subsidies and other incentives (EU CAP Network, 2023).

Regulatory pressures and negative sentiment

Our research reveals that legislation (50%) is by far the most important topic recognized by Danish dairy farmers to be influencing the future of their operations (Hammer research, 2023). A large contributor to these results may be the carbon tax to offset emissions, which the Danish government has introduced last summer as the first country in the world. Speculations about this measure have been talked about for years, but it has recently been announced that the annual tax will be effective from 2030 onwards and the average cost will be 672 krone (€90) per cow, rising to 1680 krone (€225) per cow in 2035 (CNN, 2024; FD, 2023; NutriNews, 2024).

Several influential actors in the Danish dairy industry, most prominently Arla Foods, embrace the tax and advocate its positive outcomes (CNN, 2024). However, other parties such as Bæredygtigt Landbrug – an organization promoting the economic interestsof farmers – criticize the policy by labelling it as a ‘scary experiment’ (NutriNews, 2024). This statement is in line with earlier concerns raised by farmers who stated that the carbon tax could drastically decrease Danish agricultural production due to the rising costs (Reuters, 2024).

The announced carbon tax and other regulatory pressures leave a part of Danish dairy farmers worried, as many questions about future regulations are still unanswered (Veeteelt, 2024). Some dairy farmers think that a substantial share of colleagues will quit their dairy farm practices over the coming years due to the high costs involved in all these measures (FD, 2023). Others think that Danish dairy farmers will continue their activities in other countries where regulations are less stringent (Nieuwe Oogst, 2024). This pessimistic sentiment can also be observed in our research: only 19% is positive about the future of the national dairy farming sector for the coming five years, while almost 40% views the future negatively.

Danish dairy farmers are less negative about their own operations, with 32% feeling positive about the future of their dairy farms. However, a significant group of 23% views the future of their operations negatively (Hammer research, 2023). In conclusion, the sentiment for the next five years is quite negative on national sector level. However, there is more optimism on the individual dairy farm level, which shows resilience and willingness to adapt among Danish farmers.

Investment behavior and market opportunities

Despite the overall concerns, some Danish dairy farmers are embracing the challenges as opportunities to invest in their operations. Our research reveals that a substantial group of Danish farmers (43%) is willing to invest in the coming two years. Of this group, 34% invests in farm facilities and 23% invests in robotics (Hammer research, 2023). The motivation for investments is likely driven by the need to become more sustainable, as the government's push to reduce carbon emissions is seen by some Danish dairy farmers as a catalyst for change. Some farmers plan to invest in green technologies and renewable energy, viewing it as a way to reduce their ecological footprint and potentially lower their carbon taxes (Nieuwe Oogst, 2024), while others seek to capitalize on the sustainability subsidies offered by the Danish government (Veeteelt, 2024).

Additionally, sustainability decisions offer opportunities to receive a higher price for the produced milk. For instance, Arla Foods provides Danish dairy farmers with a compensation per liter milk when farmers pursue anaerobic digestion practices (Veeteelt, 2024). Suppliers offering sustainable solutions like waste management systems can capitalize on these increasing incentives of influential parties like Arla Foods and the Danish government, who are pushing the farmer to become more eco-friendly.

Future proof Danish dairy sector

While the Danish dairy sector is encountering substantial challenges from new regulations like the carbon tax, it also presents notable opportunities for growth and innovation. The significant share of dairy farmers engaging in organic farming shows the Danish willingness to embrace sustainability. They realize that investing in technologies like robotics and green energy solutions are crucial for future-proofing dairy operations. These investments not only enhance environmental responsibility but also ensure long-term profitability, efficiency and resilience, positioning Danish dairy farmers to remain competitive in an evolving industry.