Farmgate milk boon

Dairy leaders in the sub-tropical farming region say the clock is now definitely ticking on cheap $1-a-litre supermarket milk.

The proposed free trade agreement (FTA) will cut tariffs on Australian exports, currently as high as 20 per cent, within a decade.

Combined with demand from Gina Rinehart's planned $500m southern Queensland infant dairy formula plant, plus Norco's $4.5m factory upgrades to lift fresh milk exports, and the under-supplied Queensland drinking milk market, on-farm production growth is likely to be quickly absorbed at competitive prices.

The initial premium money in Queensland will be in cow values, given the Rinehart project, Hope Dairies, plans to be 70 per cent self sufficient.

It proposes having 5000 hectares and 16,000 cows in the South Burnett to supply its factory.

Few out-of-state cows meet the Queensland Bovine Johne's Disease regulations.

Queensland Dairyfarmers Organisation president Brian Tessman said huge opportunities existed with modern technologies to efficiently breed and raise quality heifers given the good returns they will command.

Northern cows were already hot property because China had been buying up southern heifers.

Demand for extra livestock for Hope Dairies was expected soon and analysts also believed regional frontrunner Norco had plenty of growth potential with its fresh milk selling in China for up to $9 a litre, marketed strongly around its farms' supply provenance.

Norco, which is also contracted to supply 65 million litres annually to the Coles house brand, paid average farmgate prices of 53.25 cents/L in the 2013-14 financial year, up from 51.74 the year before - and arguably Australia's highest supplier price.

The Northern Rivers farmer co-operative's milk intake was 163.2m litres in 2013-14, but a big recruiting program, particularly in South East Queensland, is set to lift receival volumes markedly.

Last week Norco announced a big investment in its Mid North Coast factory at Raleigh to "take export sales of fresh milk to China to the next level".

Norco's investment plans follow another solid annual financial result, which paid a three per cent member dividend worth around $250,000.

The co-op's earnings before interest, tax, depreciation and amortisation (EBITDA) lifted 17.6pc to $7.6m from turnover of $430m.

Earnings come from dairy products such as fresh milk and ice-cream, a successful rural stores division and manufactured stockfeeds and pet foods.

Chairman Greg McNamara (pictured), from Goolmangar near Lismore, said the FTA and the Rinehart project were dairy industry "game changers".

"One can only assume pressure on farmgate milk prices will rise," he said.

Corporate investment on a large scale created a dynamic which would take time to understand, however it was likely to create competition for milk in a market already under supplied by 100m litres a year.

For some time Norco had viewed Asia as a way of reducing dependence on the major retailers in Australia.

Mr Tessmann said the supermarket milk price war had cost Queensland huge volumes of milk production capacity.

While he did not expect large amounts of Queensland milk to go to China in the near term, beyond the fresh milk sent by Norco, the FTA offered huge potential for investment and growth "as we've seen lately with the Hope Dairies project".

"Chinese consumers clearly value our high quality dairy products - in stark contrast to Australia where major supermarkets are happy to devalue our fresh milk as a discount marketing agent."