May 12, 2011

 

Stagnation in Australian dairy industry might have repercussions

 

 

Australian dairy industry's growth lack could affect future transactions with global customers and questions regarding the expansion of the industry also remain uncertain.

 

Dairy Australia trade and strategy manager Joanne Bills said, "In many cases, the nation's milk production was not keeping up with the increase in demand from key markets."

 

"The issue we have as an industry is we are losing competitiveness," she said.

 

"While we have got under-utilisation of factories out there, if we have not got the ability to invest in the latest technologies and be competitive against a player like New Zealand, we do run the risk of actually losing share and not being able to pay a decent price."

 

Admitting the dairy industry's situation was a catch-22, Bills said the key to more milk would be sustainable and profitable growth.

 

Gippsland dairy consultant John Mulvany can see both sides of this argument.

 

From a manufacturer's point of view, it was helpful to grow milk, make the most of all the unused stainless steel and reduce overhead costs.

 

However, he said on-farm milk growth must make financial sense and the single greatest sign to get milk growth is milk price.

 

"The only way dairy farmers can grow more milk is to produce more milk per cow or increase cow numbers. Both of these figures require more operational costs or capital," Mulvany said.

 

"If the milk price was AUD5.50-5.60/kg (US$5.50-5.96) of milk solids, milk would grow but only if you could guarantee that price for two or three years.

 

"As no one is going to guarantee that price, growth in milk would be much more subdued."

 

Warning that increasing milk production does not necessarily mean greater profit, Mulvany stressed recent overhauls of industry payment systems could promote expansion on some farms at the expense of others.

 

"Certain groups of farmers receive more income so they continue to produce milk," he said.

 

"That may not be helpful to the efficiency of the overall industry so we need to be careful about that."

 

Dairy Australia managing director Ian Halliday agreed that maintaining a reasonable price would provide farmers with confidence to ride out peaks and troughs, but added that global price was uncontrollable.

 

He said farmers should be focusing on their margins and what they can control, such as core operating costs, pasture quality and utilisation.

 

Providing answers to industry challenges such as attracting, retaining and training workers, as well promoting new research and technology and helping farmers manage risk were all ways to promote confidence in the industry.

 

However, Halliday admitted there were hurdles other than price that would prevent a quick turnaround in industry growth, including the availability of cows.