Dairy processing sector navigating tough period

In stark contrast to Australian dairy farmers, the dairy processing sector is navigating a tough period, reflected by Australia slipping behind the UK as the fifth largest dairy exporter and a steep 17% rise in imports – with 29% coming from New Zealand alone.

Our role in transforming perishable raw milk into safe, nutritious dairy products is often overlooked.

Yet, without a viable domestic dairy processing sector, enjoying Australian-made and branded dairy products like fresh milk, cheese, and yoghurt would be impossible.

The sector faces a complex web of challenges. While there is potential for long-term growth and sustainability, immediate concerns and regulatory constraints need addressing to secure the dairy industry’s future and to keep dairy manufacturing local.

1. Record Low Milk Supply:

• The industry grapples with a record low milk supply, gradually declining from 11 to 8.1 billion litres (in FY23) – with a record 5% drop in this last year alone – causing heightened competition and increased farmgate prices.

2. Raw Milk Prices:

• The cost of raw milk – the biggest input cost – surged by 30% from last season (with the average farmgate milk price of $7.52kgMS to $9.80kgMS in FY23).
• The 17% increase in imported dairy products – and a 30% or AUS$3.00 price differential between Australian and New Zealand farmgate milk prices, as an example – is making Australian products less competitive.

3. Rising Input Costs:

• Dairy processors face significant increases in input costs: labour (up 10%), transportation (up 10%), packaging (up 20%), and energy (up to 300% for gas, 100% for electricity).

4. Global Market Dynamics:

• A softening global market has reduced export volumes by 16%, adding pressure to an industry already struggling with domestic competition and high costs.
  Australia, now behind the UK, must address these challenges to regain its export position.

5. Adverse Policy Environment:

• The ADPF advocates for positive policy reforms that benefit not just dairy processors, but also dairy farmers, the economy, and regions. But the current policy environment poses major risks – especially the Dairy Code of Conduct and the proposed Murray Darling Basin Plan Water Amendment Bill 2023.
• The Dairy Code, while aiming for fairness in the farmer-processor relationship, has inadvertently created a rigid pricing structure that hampers the ability of dairy processors to respond to market fluctuations, thereby shackling our ability to compete with other dairy producing nations – like the UK and New Zealand.
• Similarly, the proposed changes to the Murray Darling Basin Plan threaten to further reduce water availability, directly impacting raw milk production – already at 30-year lows – and by extension, our dairy processing capabilities.

6. Overall Impact:

• A combination of low milk supply, rising input costs, and competitive pressures is reshaping the dairy industry. Major dairy processors are reassessing their footprint, with eight business closures YTD.
• Immediate concerns like soaring costs, competitive pressures, and regulatory constraints need addressing to secure the dairy industry’s future.

The dairy processing sector is central to many communities, from Lismore to Kyabram, Brisbane to Bega, and Jervois to Balcatta. To continue delivering high-quality dairy products and reclaim our global market position, a concerted effort from all stakeholders – government, industry, and consumers – is crucial.

Dairy farming and dairy processing are inter-dependent: processors have no raw milk supply without farmers; and farmers and consumers have no dairy products without dairy processors.

By supporting Australian-made and branded dairy products, consumers are not just choosing quality; they are investing in the future of a dairy industry vital to our nation’s economy, food security, and regional development.