What Does It Cost to Make Infant Formula? A Production Cost Breakdown

Infant formula looks like a dairy product with a pharmaceutical price tag. Most of what goes into a can is milk protein, lactose and vegetable oil, but a large part of what it costs to make sits in testing, cans and drying.

In the 12 months to October 2026, the dairy part moved more than anyone planned for. European demineralised whey powder more than doubled. Skimmed milk powder rose almost 80%. Gas more than doubled.

This post breaks down what it costs to make standard cow’s-milk-based infant formula at industrial scale in Europe, layer by layer. It is written for procurement and finance teams at infant nutrition manufacturers, and for retailers buying private-label formula. It is one worked example of a should-cost analysis: what a product ought to cost, built up from its inputs. It is about cost structure only. It makes no nutritional or health claims and is not advice on feeding.

What is the production cost of infant formula?

Infant formula production cost is the cost of the dairy base, the oil blend and the micronutrients, plus spray drying, testing and the can. In our illustrative stack, ingredients are about 55% of production cost, with whey and milk powder the largest lines. Packaging is about 15%, energy 5%, and labour, quality control and overhead around 20%. Above that sit the costs that make formula expensive on the shelf: research, regulatory work, marketing and margin.

The cost stack: where the money goes

Public cost data on formula is scarce, because the market is concentrated. Two sources help.

The first is the UK Competition and Markets Authority’s infant formula market study, published in February 2025. The CMA collected cost data from manufacturers and looked at three variable cost lines: raw materials, labour and packaging. It found that manufacturers’ variable gross margins, after those costs, stayed between 50% and 75% of revenue from January 2019 to November 2024, across infant formula and follow-on formula. That means the variable cost of making the product was roughly a quarter to a half of what manufacturers were paid for it. Margins dipped slightly around 2023 on higher input costs and recovered in 2024, so manufacturers largely passed cost changes on.

The second is old but specific. In its 2008 annual report, Synutra, a US-listed infant formula maker operating in China, disclosed that whey protein powder was 35.9% of its cost of sales and raw milk 24.5%, for the year to March 2008. A year earlier, whey had been 26.3%. The filing links its higher costs to more volume, a richer product mix and higher unit prices for both of those raw materials. That is the most important thing to understand about a formula cost stack: the shares are not fixed, and whey is the line that moves them.

With those two anchors, here is our illustrative cost stack for a standard first infant formula, made in Europe and sold in an 800 g can. The shares are of production cost (the cost of making the product, before brand marketing and research) and reflect prices about a year ago:

Our estimate, rounded. Your own recipe, plant and contracts will give different shares.

Two cost lines are larger than in most dairy products. Micronutrients and special oils: the premix and the DHA and ARA oils are a small fraction of the recipe by weight but, in our estimate, around 12% of production cost together. Testing and release: every batch of a regulated infant product is tested before it ships, which sits in the labour and overhead line and does not fall when milk prices do.

The recipe: what the EU rules fix

In the EU, the composition of infant formula is set by Delegated Regulation (EU) 2016/127, which has applied since February 2020. It sets minimum and maximum levels per 100 kcal, which leaves manufacturers room to choose ingredients but not much room on the nutrient totals:

Source: Delegated Regulation (EU) 2016/127, Annex I. Energy must be 60 to 70 kcal per 100 ml of prepared formula.

Two rules matter for cost. DHA has been mandatory since the regulation applied, so every EU infant formula carries a DHA source, usually fish or algal oil. And the regulation bans sesame and cotton seed oil and caps erucic acid at 1% of total fat, which narrows the oils a manufacturer can blend.

Here is an illustrative recipe that fits those ranges, per 100 kg of powder:

Our illustrative recipe. In our calculation it gives about 11% protein, 27% fat and 56% carbohydrate, roughly 515 kcal per 100 g, with about 60% of the protein from whey. Per 100 kcal that is about 2.2 g protein, 5.3 g fat and 10.8 g carbohydrate, inside every range above.

Real recipes vary a lot. Many large plants make formula by the wet-mix route, starting from liquid skim milk and liquid or concentrated whey and spray drying the whole blend. Others dry-blend bought-in powders, or combine the two. A plant that demineralises its own whey is far less exposed to the D90 market than one that buys it in powder form. Check which route your supplier uses before you weight the inputs.

Why the fat source matters

Fat is about a quarter of the powder by weight, and a typical EU blend uses palm olein, coconut oil, sunflower or high-oleic sunflower oil and rapeseed oil. Per kilo, vegetable oils cost much less than milk proteins, which is why the oil blend is a big share of the recipe but a small share of the cost.

Some brands replace part of the blend with milk fat, or sell their formula as palm-free. The CMA’s report describes both in the UK market. Those are product decisions with cost consequences: a recipe built on milk fat follows the milk fat market, and a palm-free blend shifts weight onto oils with a different price path.

The processing layer: drying, testing and cans

Formula is a powder, and making powder from a liquid blend is the energy-hungry step. Moejes and van Boxtel, in a 2017 review in Trends in Food Science and Technology, put conventional milk powder production at about 10 MJ per kilo of powder, and note that milk powder production accounts for 15% of total energy use in the dairy industry. A 2021 review by Patil and colleagues in Drying Technology finds spray drying takes the largest share of energy in powder manufacture.

Energy is still only about 5% of cost in our stack, because formula carries so much else. But the gas price behind it more than doubled this year.

The can is the cost buyers tend to underrate. An 800 g metal can, a plastic lid, a scoop, a label and an outer case add up to the largest non-ingredient cost after labour, testing and overhead in our estimate, and cost far more per kilo than a bag-in-box.

What moved in the last 12 months

Here is how the main formula inputs moved between October 2025 and October 2026:

The whey complex is the story. European D90 prices rose 121.7% on the Vesper Price Index, and the latest print was also the series’ 12-month high. The sweet whey powder market, which feeds demineralised whey production, rose 94.4%. The European SMP market rose 79.6%, the European lactose market 40.9%, and WPC 80 quotations for regular grade 48.3%. The WPC 35 market rose 76.9%.

Formula makers are not the only buyers of whey. Sports and active nutrition compete for the same protein stream, a pressure we already saw building in our 2024 infant nutrition market review.

Over two years the whey complex looks even sharper. SMP is the exception: it fell in the first of the two years, so its two-year rise is smaller than its one-year rise.

Vesper Price Index, Europe, EXW. 12 months: 22 Oct 2025 to 21 Oct 2026. 2 years: 2 Oct 2024 to 21 Oct 2026.

The oils moved far less, and not in the same direction. Over the same 12 months, the West-EU RBD palm oil market rose 16.4%. Formula blends use the olein fraction of palm oil, but Vesper quotes refined olein in Asia and Turkey, not West-EU, so we use West-EU RBD palm oil as the proxy for a European plant. Over the same months, the Malaysian olein quote rose about 10%. The West-EU crude sunflower oil market rose 13.5%, West-EU crude rapeseed oil prices rose 9.6%, and West-EU crude coconut oil costs fell 17.6%. Weighted 40:20:20:20 across palm, sunflower, rapeseed and coconut (our assumption for a typical blend), the oil blend rose about 7.7%.

The rest of the basket:

• THE natural gas futures for the German hub, settled on EEX, rose 115.3%.
• The West-EU tinplate market rose 6.2% (Vesper partner price, 1 Oct 2025 to 1 Oct 2026).
• We hold DHA and ARA oils, the vitamin and mineral premix and other minor ingredients flat below. Vesper prices fish oil and single vitamins such as vitamin A, D3 and E, but not the refined DHA and ARA oils or the blended premixes that formula plants buy.

What that did to unit cost

The method is the same one we use to check a supplier price increase: weight each input’s price change by its share of cost, then add the results.

Using the illustrative stack above:

Our calculation from Vesper and EEX price changes to October 2026. Cost shares are illustrative.

The dairy base contributes about 35 points of the 41.8. D90 alone is 24.3 points, more than SMP, lactose, WPC, oils and packaging combined. Energy adds most of the rest. The oil blend, about a quarter of the powder by weight, adds less than half a point.

Three honest limits on this example:

• The D90 share drives everything. A wet-mix plant that demineralises its own whey does not pay the D90 market on all of its whey. If only half of the 20% D90 share follows the market price, the D90 contribution halves to about 12.2 points and the total drops to about +29.7% (our calculation).
• Energy is a proxy. Spray drying runs mainly on gas or steam, but fans, pumps and filling lines run on electricity. If only half the energy bill follows gas and the rest is held flat, energy adds about 2.9 points and the total is closer to +39%.
• Forward cover delays the hit. Dairy ingredients can be bought on contracts of a quarter or longer. A manufacturer that fixed its whey early is not paying this year’s spot move yet, but it will when the contracts roll.

If you want this as a model you can rerun every month, here is how to build a should-cost model from scratch. For the same method applied to a product where dairy fat dominates, see our breakdown of what it costs to make ice cream.

From production cost to shelf price

A 42% rise in production cost does not mean the selling price should rise 42%. Cost increases pass through in money, not in percent.

The CMA’s finding gives the scale. Taking a quarter to a half of net revenue as the cost base, a 41.8% rise in it is worth roughly 10 to 21% of the selling price, if passed through one for one in money terms (our calculation). Treat that as a floor. The CMA’s range covers only raw materials, labour and packaging, while a full production cost also carries energy, overhead and depreciation, so it is a somewhat larger share of revenue. The exact figure depends on which costs a supplier counts.

To put it in money with made-up round numbers: if an 800 g can cost €5.00 to make a year ago, +41.8% is about €2.09 more per can. If the manufacturer sold that can at €12.00, those €2.09 are 17.4% of its price, not 41.8%.

The CMA also found that the raw ingredients in some premium products cost more than those in standard ones, but that the difference between standard and value products is much smaller. For retail buyers, that matters: a value or private-label formula, like the own-label and value products launched in the UK in 2024, has ingredient costs close to a standard branded one and a much thinner layer of brand cost on top. Its price should therefore track the input markets more closely, in both directions. Recipe choices still move the cost base: Kendal told the CMA that its lower-priced Bonya brand uses skimmed milk powder and anhydrous milk fat where Kendamil uses fresh whole milk, and carries lower DHA and ARA levels.

The levers: what changes your exposure

1. Whey route: bought-in D90 or own demineralisation. This is the biggest lever this year. A plant that buys D90 powder carries the full market move. One that processes liquid or concentrated whey on site carries the whey price plus its own processing cost, which is a different and often steadier exposure.

2. Protein balance: SMP, whey and WPC. The regulation fixes total protein, not its source. All three rose this year, but D90 rose faster than SMP and much faster than WPC 80, so the mix matters.

3. Carbohydrate: lactose from whey or added lactose. D90 brings lactose with it. Added lactose rose 40.9%, a third of the D90 move, so a recipe that gets more of its carbohydrate from added lactose and less from demineralised whey was less exposed this year.

4. The oil blend. At about 6% of cost, the blend is not where the money is, and any change has to keep meeting the fatty acid rules.

5. Pack format. At around 15% of cost, packaging is the biggest non-dairy cost a buyer can change through the specification. A metal can, a bag-in-box and a pouch carry very different costs per kilo. Can weight, lid design and scoop choice all count.

6. Energy buying. Energy added almost 6 points in our example. A plant that fixed part of its gas ahead is not paying the full 115% rise on all its volume. If you buy finished formula, ask how much of the next 12 months of gas is already fixed.

What to ask your supplier

For a private-label buyer or a brand sourcing from a contract manufacturer, the useful question is not “did dairy go up?” but “which dairy, at what share of cost, bought when?”. Before you accept or push back on a formula price change, get:

• The supplier’s cost shares for D90, SMP, lactose, WPC, oils, premix, packaging and energy, in %.
• Whether the whey comes in as D90 powder or is demineralised on site.
• The base month for each price move, and how much was bought forward.
• Which costs the supplier treats as passing through, and in money per can rather than in percent.

Then multiply each share by its price move, add the results, and convert the total to money per can. A supplier asking for a percentage increase on the selling price close to the percentage increase in production cost is asking for more than the inputs support.

Next steps

Pick your highest-volume formula SKU and fill in the share table above with your own recipe, route and contract prices.

Vesper also tracks infant milk formula trade data for the finished product, if you want to see where volumes are moving.

To keep the calculation live, Vesper Cost Models let you link each ingredient in your recipe to a Vesper price series, add manufacturing and operational costs such as labour, overhead and logistics, and see which inputs moved your unit cost since the last negotiation.