AFTER a difficult 18 months dealing with supermarket pricing wars, disruptive takeover bids and trade deals, Australian dairy farmers are overdue for some good news.
That news was delivered in a report produced by the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) - Financial performance of Australian dairy farms - which found dairy incomes had increased around 29 per cent above the 10-year average to 2012–13, rising to an average of $129,000 in 2013–14.
Agriculture Minister Barnaby Joyce said the ABARES results were very welcome after a tough year for dairy in 2012–13, when Australian dairy farms averaged just $44,200 in cash income.
“The rebound in dairy farm fortunes we’ve seen last financial year is great news for an industry that contributed $2.2 billion to Australian exports in 2013,” Mr Joyce said.
However, returns to producers were still holding back the entire dairy sector's progress, according to a Rabobank report released in October.
Rabobank senior dairy analyst Michael Harvey said without improved profitability on-farm, the industry was unlikely to see the milk production growth required to tap into regional export market opportunities.
Mr Harvey said if milk producers and the dairy processing sector could align strategy to cope with complex and volatile global markets, the opportunity for the sector could be “golden”.
The China-Australia free trade agreement signed in November was seen as a “game-changer” for the local industry, allowing Australia to compete more fairly against key export nations such as New Zealand, Europe and the United States.
Chinese dairy demand is expected to continue to grow at 3.5pc a year, according to Rabobank, while Australian liquid milk production has plateaued. New Zealand is capturing more of the growth in Chinese dairy consumption because it is stepping up production.
The sector’s ambitions to lift production to 15 billion litres by 2020 would require "a fundamental shift" in supply growth, with the 2013-14 season closing at 9.2 billion litres produced. While 2014-15 should see production lift by 2pc, achieving the 2020 goal would require 8pc average annual growth, said the Rabobank report.
Regardless, Mr Joyce still remained upbeat about the industry's prospects.
Taking a long-term view, he noted the average volume of milk produced by small farms increased by 44pc in the 14 years to 2013–14, and the averages for medium and large farms increased by 22pc and 9pc over the same period.
“The Australian dairy industry operates in a highly competitive global environment with heavy pressure on farmgate milk prices, big swings in world prices for traded dairy products and variable seasons that often demand significant investment in fodder,” Mr Joyce said.
“We are already seeing dairy processors and manufacturers successfully establish and expand export market opportunities into Asia.
“This is an industry that has responded very effectively to constantly changing circumstances, driving consistent productivity improvement through responsible farming and better application of technology.”
Senator Richard Colbeck, Parliamentary Secretary to the Minister for Agriculture, was pleased to see the ABARES report name his home state of Tasmania as a national dairy industry leader.
After recording an average loss of $73,450 in 2012-13, Tasmanian dairy farm businesses rebounded strongly to record an estimated average profit of $123,696 in 2013-14. Total cash receipts increased from an average of $804,604 per farm to more than $1 million in 2013-14.
“This higher farm income is an excellent result for our hard working dairy farmers and represents outstanding performance,” Senator Colbeck said.
Tasmania’s share of Australian milk production increased from 5pc in 1999-2000 to 8pc in 2013-14, mainly due to increases in farm sizes and productivity.
“With growing access to international markets, the prospects for Tasmanian dairy are now stronger than they have been for many years” Senator Colbeck said.
While consolidation has been a longstanding trend in Australia’s dairy processing sector, Rabobank's Mr Harvey said there had been renewed corporate activity recently, with the possibility of further consolidation.
"New entrants to the marketplace should be viewed as a positive, given this brings much needed capital for further investment in the sector,” he said.
