The short and long-term outlook for Australian dairy

Recently, these difficulties have played out publicly as many dairy farmers deal with unexpected mid-season decline in the farm-gate milk price, putting serious stress on some producers. Heavy coverage of the issue has captured the attention of people from all walks of life – from city to country, business to government.

It’s not unusual for farmers to deal with challenging conditions which test their ability to perform, be productive and profitable. As an industry, dairy has been through rough patches before and come out of them to be vibrant and successful.

After the industry was deregulated in 2000 farmers were forced adjust, leading to a drop in milk production. Throughout this period many did it tough but farmers adapted, survived and thrived. These same businesses are being tested again today.

The question for many is how we make sense of the macro fundamentals we’re confident are still playing out and how we translate this back onto the farm. That way we will encourage greater investment and growth, which will in turn increase productivity, competition and greater resilience when unexpected downturns occur.

BETTER TIMES AHEAD

Asia’s rising middle class and the demand for Australian dairy produce is real. We see this in the data and we see it on the ground in countries like China. Combined, it should allow most dairy businesses to see better times in the long-run.

Around 27 million people are said to move into middle class status each year in China, and their rising income and changing dietary preferences for dairy produce such as fresh milk, cheese and yoghurt is a strong and positive story.

In 2012, China consumed 46 billion litres of milk product equivalent. The estimate for 2030 is it will increase to an enormous 74 billion litres. When you compare this to the five billion litres which Australians consume, it’s a strong demand story we know will play out over the long-term for our industry.

As a country, our farm gate dairy output is $4.7 million. In addition, Australia is the world’s fourth-largest exporter of dairy products, and our exports have grown from $A969 million in 1980 to $A3.2 billion in 2014. Australia currently accounts for seven per cent of the world's dairy trade.

These are significant and promising numbers. If we as an industry focus on targeted and valuable global trade opportunities, supported by uplifts in dairy production, we can capitalise in a globally competitive demand landscape.

ON ITS FEET

The immediate issue for now is how to help the industry stay on its feet so it can see out this tough time. 

ANZ has announced an assistance package for our impacted dairy farmers, including suspending repayments on loans and credit cards, waiving fees and making adjustments to lending limits. We hope this will provide some relief in the short term, as we continue to talk to each customer and provide solutions to meet their circumstances.

We will no doubt continue to see farmers watching closely what’s next in terms of price. Some may even look to consolidate or some will just focus on reducing their costs as much as possible to stay afloat.

It’s important farmers don’t decide anything too significant until we know more, as dairy is a long-term game and things will change. The good news is the industry fundamentals remain unchanged and are not in decline, and the macro demand for dairy still holds true.

Dairy came from modest beginnings back in the late 1700s when Australia’s first dairy cows arrived on the first fleet. Today it’s an industry that’s flexible, adaptive, innovative and a strong contributor to our overall economy.

While we can’t downplay this current situation, in the hearts and minds of all Australians is hope many farmers will stay in a healthy position and allow for confidence to come back in to the market and this much-loved primary industry will thrive once more.

Christine Linden is General Manager, Regional Business Banking at ANZ