Australian dairy industry unsustainable if not globally competitive

The Australian Dairy Products Federation has today moved to provide an understanding of the current operating environment for dairy processors as the new (FY2025) season approaches, saying the high cost of raw milk is unsustainable without a change in market conditions.

ADPF Chief Executive Officer Janine Waller said processors welcomed robust discussion about farmgate milk prices in the lead up to June 1, but it was important to understand the facts about the variables that impact raw milk prices and the dynamic domestic and global market conditions at play.

“The Australian dairy industry will not be sustainable unless it remains globally competitive across the entire supply chain,” Ms Waller said.

“Seventy-one per cent, or more than 6 billion litres, of Australia’s total milk production is directly trade exposed to global commodity markets and exchange rates. This means our dairy products must compete with imports into Australia and exports around the world.

“However, in Australia there continues to be a disconnect between global commodity prices and farmgate milk prices.”

The spot Commodity Milk Value (CMV) – which is an important forward price milk indicator – is sitting at about $7.30 per kilogram of milk solids. This is about 30 per cent or $2.00 below the current weighted average Australian southern region farmgate milk price of $9.40 per kilogram of milk solids.

Over the 12 months to March 2024 spot prices of major commodities – including cheese, skim milk powder and whole milk powder have all dropped.

“The most important of these to note is cheese, which has dropped by a massive 29 per cent,” she said.

“This is important because Australian dairy processors manufacture more than 400,000 tonnes of cheese annually.

“So, cheese – the largest utiliser of Australia’s milk – has dropped by US $1800 per tonne, while the cost of production continues to rise.”

In addition, the volume of dairy imports into Australia is impacting the competitiveness of locally produced dairy products. More than 2 billion litres of milk equivalents entered the market this year, up 17 per cent from the year prior.

“The reality is Australian consumers have accepted imported dairy products, and retailers and food service outlets are interchanging Australian cheese and butter with cheaper imported products at their discretion,” Ms Waller said.

At the same time, low milk supply and price competitiveness has caused Australian dairy exports to drop by about 17 per cent or 2.4 billion litres of milk equivalents – and this continues to decline.

At the start of the FY2024 season, there was a $3.00 or 30 per cent differential in the farmgate milk price between Australian and New Zealand, and this continues to be more than 20 per cent or $2.00.

Ms Waller said in the past 18 months 11 dairy processing businesses have publicly announced a closure.

“Paying a price for raw milk that is higher than the value that can be derived from a manufactured dairy product is not sustainable long-term,” she said.

“Exits from the industry and reductions in processing footprints to better match supply are necessary to ensure dairy processors can continue to operate.

“They’re doing all they can to keep their doors open, protect jobs, farmers and continue contributing to regional communities throughout Australia.

“Our goal is to secure a strong, vibrant Australian dairy industry and to keep dairy manufacturing local.”

How are milk prices set in Australia? Read our Fact Sheet.

Want more information on market conditions? Read our Fact Sheet.

Visit ADPF’s Milk Value Portal milkvalue.com.au for information on current and historical data on Australian farmgate milk prices and the variables that influence this.