HUP emphasizes that the Croatian dairy industry is in a paradoxical position where it is taken for granted that domestic milk is on the shelves every day, while it is becoming increasingly difficult to maintain domestic production. Despite tradition and potential, self-sufficiency in milk is around 40 percent when measuring purchases against total annual consumption in the country, which means that most consumption is covered through imports. This raises questions about food security in the future, as well as the sustainability of business models for producers and processors who are exposed to strong international competition, while facing price restrictions and higher tax burdens in the domestic market.
In the last decade, the purchase price of milk in Croatia has been about 3 percent lower than the EU average, while retail prices of dairy products in stores are about 8 percent lower than the EU average. In practice, this means that the pressure is almost exclusively transferred to domestic producers and dairies, while consumers enjoy lower prices in the short term but risk losing local production in the long term. The area of UHT milk is particularly sensitive, where there has been an intense influx of cheaper imports for years, especially from Hungary, which has a surplus in milk production. Domestic processors find it difficult to build added value and investment cycles that would enable higher purchase prices and more stable operations in such an environment. The VAT system is burdened by a clear imbalance that further reduces the competitiveness of the sector.
Although the VAT rate on milk as a raw material is 5 percent, a large part of primary production comes from family farms outside the VAT system, so processors do not have the option to use input tax, while cheeses and fermented products are burdened with a rate of 25 percent, which further increases costs and reduces the competitiveness of domestic processing. Since milk accounts for about 55 percent of the total costs of producing cheeses and fermented products, the tax system puts producers at a disadvantage. The raw material is taxed at 5 percent, but finished products carry a rate of 25 percent, meaning that the most valuable part of production is also the most heavily burdened. In such circumstances, domestic companies struggle to cover costs and develop new products, while imported items often enter the market at a lower price. This creates a situation where it is more profitable to import finished products than to invest in domestic processing, even though processing is key to creating jobs and adding greater value within the economy.
Structural cost pressures undermine the sustainability of results
Although business revenues in the dairy sector in 2024 have cumulatively grown by 24.7 percent compared to 2021, the cost side of operations has grown significantly faster, as evidenced by a 30 percent increase in the cost of raw materials and materials and a staggering 40.7 percent increase in labor costs during the same period. When one-off positive effects from the previous period are removed, it is seen that normalized EBITDA in 2024 falls by 14 percent to 46 million euros. For some producers, net margins, after excluding one-off items, fall to just 1.5 to 2 percent, meaning that certain parts of the sector are practically operating on the brink of survival. These indicators suggest that the nominal result does not reflect the actual sustainability of operations but conceals strong structural pressures arising from rising costs, high dependence on imports, and limited room for correction of selling prices. Despite apparent growth, the sector remains sensitive to tax, input, and regulatory pressures and is increasingly dependent on short-term market movements, while low levels of investment continue to limit long-term development and competitiveness. Additional cost pressures (in the form of minimum wage increases in 2026) will further undermine domestic competitiveness and steer the market towards milk imports. According to the IFE Institute for Food Economics, the purchase price of raw milk in Germany in September is down 17 percent year-on-year, which further increases import pressure in Croatia.
