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The Australian Dairy Industry November 2008. Presentation Plan. Overview of the Australian Dairy industry Dairy Australia’s position & role in the industry. Australian Dairy Industry Overview. National herd size approx 1.7 M. dairy cows 8,000 dairy farms Average dairy herd size 215 cows
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Presentation Plan • Overview of the Australian Dairy industry • Dairy Australia’s position & role in the industry
Australian Dairy Industry Overview • National herd size approx 1.7 M. dairy cows • 8,000 dairy farms • Average dairy herd size 215 cows • Average milk yield per cow approx. 5,400 litres pa • Average milk composition tests indicate milkfat = 4.04% & protein = 3.30%
Australian Dairy Industry Overview • Milk production in 2007/08 was 9.2 billion litres – down 4% on LY • Estimated 2008/09 is 9.3 billion litres – up 1% on LY • Total value at farm gate $A 4.6 billion • 3rd most important rural industry in Aust – behind beef & wheat • Total value of exports $A 2.9 billion • 5th most important rural export – behind beef, wheat, wool & wine • Total value ex-factory $A 11.5 billion
Australian Dairy Industry Regions 5% 11% 4% 7% 66% 7%
Seasonality of Milk Production in Australia • Milk production is traditionally seasonal - reflecting the pasture-based nature of the industry.
Milk Production 1979/80 – 2007/08 • Very strong growth through the 1990’s – increasing herd size & yields per cow [grain feeding]. • Significant impact of the 2002/03 drought – with a following stabilisation phase – then 2 more droughts.
Dairy farms and cows • Farm numbers steadily decreased – over many years. • Cow numbers steadily increased through the 1990’s – until the 2002/03 drought.
Milk Production and Yield per cow • Steadily improving milk yields per cow, combined with increasing cow numbers, has delivered strong growth in total milk production through the 1990’s.
Australian Dairy IndustryFarmgate [factory paid] Prices • No regulation of price paid to farmers – totally market driven. • Suppliers to co-operatives -> average returns from all markets – Aust & exports. • Suppliers to drinking milk companies -> contracted prices for year-round supply. • Australian farmgate prices are driven by & hence strongly correlated to export returns.
Australian farmgate prices vs Export returns • Australian farmgate prices are strongly correlated to export returns. • No regulation of price paid to farmers – totally market driven.
Australian dairy farm margins still under pressure - despite strong milk prices • Strongly increasing input costs: • Grain prices – on increasing feeding of grains. • Fuel prices. • Fertiliser costs. • Interest costs – on increasing debt levels. • But there has been financial recovery – in many regions – in 2007/08. • Stronger milk prices enable dairy farmers to invest in their production systems – to adapt to changing climate conditions.
Impact on dairy farm incomes & profits Source: ABARE Average farm debt increased by 50% since 02/03 to over $A 500,000
Climate change or climate variability ? • 3 widespread Australian droughts in 6 years. • Aust govt research – CSIRO [science] & ABARE [impacts on agriculture]. • We know: temperatures are rising [+1 degree so far, +1 degree by 2030]. • We’re reasonably sure: it’s getting drier [3 – 5% drier by 2030]. • We’re less certain: about runoff - the range of predictions is very wide. • It seems reasonable that variability &/or extreme events might increase: but the evidence is difficult to gather. • Working to develop regional predictions: mostare currently quite broad.
Future for the industry – on-farm • Increased climate variability is likely: • No going “back to normal”. • Farming systems will need to change: • More adaptable. • Flexible and opportunistic. • Adaptation is already happening: • Current Australian industry features a range of farming systems.
Rain-fed pasture Irrigated pasture Feedlot Supplementary grain & concentrate feeding Typical Australian production system ? • Continuum of systems operating in Australia. • Many farms feature elements of all these systems - in the future more will move between these extremes.
Future for the industry – on-farm • Adaptation strategies: • Greater risk management of bought-in feed. • Security and trade-ability of water access. • Greater water use efficiency. • Development of pasture species. • Improved feed conversion – e.g. DA’s Grains2Milk program - information and advice to farmers examining flexible feeding systems.
Australian Dairy IndustryDairy Manufacturing Environment 2007/08 • Approx 50% of total milk output is processed by farmer-owned co-ops: • Largest co-operative = 35% of milk – Murray Goulburn. • Public companies [WCBF]; multi-nationals [Fonterra; Kirin - National Foods & Parmalat]. • Private companies such as Bega Cheese, Tatura Milk, Ballantyne, Burra, Regal & many small niche specialty cheese manufacturers. • Milk processing sector undergoing continuing rationalisation. • Manufacturers responsible for own returns - no government price support.
Australian Dairy Industry - a major exporter Exports Australia • Australia exports approx. 50% of milk production - for a total value in 2007/08 of $A2.9 billion.
Australia’s Focus is on Higher Value products • With limited supply, Australian manufacturers need to ensure maximum return to the dairy farmer. • Australian product has high transformation, labour, packaging, transport costs. • Australia’s focus is on high value-added product. • The days of cheap commodity exports from Australia are well and truly over: • We are only interested in long-term business relationships with companies seeking high value, high quality products; in order to • Obtain the best possible returns for our dairy farmers - i.e. stable customers at world prices.
Australian Dairy IndustryValue of Exports by Zone - $A 2.9 B. in 2007/08 • Australian exports are concentrated in Asia / East Asia [69% of total].
Australian Dairy IndustryTOP 10 Australian Export destinations in 2007/08
The Australian domestic market • General food price inflation • Good market value growth • Demand affected by higher prices • Consumer sentiment under pressure • Increasing diversity of food service and convenience water Feed production Milk production Processing/ manufacturing Export Marketing Retail supplements Dist’n Import Food service
Economic environment Slowing economic growth Inflationary pressures sustained Disposable incomes hurting Dairy market settings Food sales growing faster LY at 7-8% Food CPI is up around 5-6% Intensifying supermarket rivalry Same store sales = CPI Expansion by Aldi & independents Lifestyle shift to foodservice & convenience Fuel / interest rates will affect discretionary meals Higher milk values being pushed into market Australian market settings
Supermarket growth by category Year to June 2008 Supermarket sales growth
Cheddar cheese – volume vs. average price % growth Fresh modified milks – volume vs. average price % growth Rising prices biting volumes?
Consumers ‘trading down’ • Milk • Plenty of choice in milk category • From branded to private label • From modified milks to regular whole milks • Pack size up from 2-lt to 3-lt • ALL options reduce $ / litre cost • Cheese • Changing pack size – same $ spend / smaller pack size
Dairy Australia • Dairy Australia was formed on 1 July 2003 – a merger of ADC & the DRDC. • Is a single dairy industry owned & funded service organisation. • Corporate objective: “To grow an internationally competitive, innovative & sustainable dairy industry.”
Australian Dairy Industry Levies - 2007/08 • Industry level activities are funded by farmer-paid levies charged on all milk produced in Australia. • Levies charged on milkfat and protein content of milk: Total Levy = 0.3 cents / litre [or $3,000 per 1 M. lts production] [Less than 1% of farmgate price] • Plus matching R & D grants [$A15 M.] from the government.
Dairy Australia Key Functions • Research, development & extension for the benefit of the dairy industry –> from on-farm & to manufacturing – to improve competitiveness. • National market development –> to increase domestic demand for dairy products – by leveraging dairy products’ health and nutrition benefits. • International trade development –> to improve the international trading environment – to enhance export market growth. • Information services -> to provide statistical & library services to the industry. • Industry relations & communications -> with farmers & the wider community. • Technical issues management -> addressing environmental & community issues - e.g. food standards; animal welfare; environmental sustainability; biosecurity; etc.
Australian Dairy Industry: Drought Response • A co-ordinated response: Dairy Australia, ADF & state farmer bodies, ADPF, Government & manufacturers. • Information & planning tools: inputs data (e.g. feed reports), updates, briefings. • Financial & support services: assistance packages, milk price support, incentives, working closely with farmers, loans & feed sourcing. • Local assistance: Regional Co-Ordinators. • Water management: Increased efficiencies - $10 billion Water Plan (Jan 2007); • Little happened in 2007 – was an ‘election year’ in Aust – expect more co-operation between state & Federal governments this year.
Thank You For a comprehensive overview of the Australian dairy industry see the “Dairy 2008: Situation & Outlook” report – available fromwww.dairyaustralia.com.au