Industry competitiveness and profitability

Dairy farmers battle price cuts, tough season

Australian dairy farmers were hit by farm-gate price cuts and tough seasonal conditions during 2016.

Dairy Australia’s Situation and Outlook report found the difficult 2016/17 season experienced by some farmers in the southern export-focused states, following price step-downs and clawbacks by manufacturers during 2016, caused cashflow management challenges that impacted on farmer confidence and milk production.

During 2015/2016, 50% of dairy farms were profitable based on a three-year rolling average. The trend over time shows a marginal decrease from the baseline of 55% set in 2013 based on a three year rolling average to 2012/13. 

In 2016/17 the broader market provided some positivity with costs for major inputs contained and most farmers current milk price forecasts improved on previous levels.

Confidence about the future of the dairy industry among farmers measured by the National Dairy Farmer Survey (NDFS) and conducted in February and March 2017 has dropped from 67% in 2016 to 53% in 2017. The survey also revealed profitability is at a three year low - 45% of farmers surveyed anticipated a profit in 2016/17.

National milk production for the 2016/17 season was expected to be down about 7.5% on the previous financial year to about 8.95 billion litres.The decline in milk production is expected to improve in 2017/18 courtesy of improving farmgate milk prices, the trend towards low-cost grain and concentrate feeds and yield improvements.

Fodder to fuel milk price lifts for the next three seasons will come from the growing taste for dairy in Asia, the Middle East and North Africa, where both populations and incomes are on the rise.  Reduced turn-off in key dairy countries including New Zealand and the European Union and the re-opening of the Russian market will also contribute upward pressure on world dairy prices. 

This is the outlook from Australia’s senior economists, whose dairy forecasts paint a much-welcome dab of optimism for the milk production Australia at long last. During the 2016/17 financial year, world prices for cheese were forecast to lift by 14 per cent, for skim milk powder by 16pc, butter by 31pc and whole milk powder 37pc.

Despite the challenges, the dairy industry remains Australia’s third- largest rural industry behind beef and wheat, with a farm-gate production value of more than $4 billion.

Sustainable Development Goals

The Australian dairy industry is aware of the role it can play in contributing to global sustainability frameworks and activities. With the recent agreement and release of the United Nations Sustainable Development Goals and the COP21 meetings in Paris, the global dairy sector, aligned through the Global Dairy Agenda for Action, is engaging on a global level. The Australian Dairy Industry’s Sustainability Framework reflects a strong alignment with these global activities, and the principles and targets of specific Sustainable Development Goals:

8.2 Achieve higher levels of economic productivity through diversification, technological upgrading and innovation, including through a focus on high-value added and labour-intensive sector.

8.3 Promote development-oriented policies that support productive activities, decent job creation, entrepreneurship, creativity and innovation, and encourage the formalization and growth of micro-, small- and medium-sized enterprises, including through access to financial services