June 24, 2004

 

 

Low Milk Prices Drain Australian Producers
 

The average price of milk has risen only slightly in the four years since the Australian dairy industry deregulation.

 

While retail prices held steady, the returns for farmers fell almost 16 per cent to range from 32¢ to 36¢ a litre.

 

Despite the decline, a national situation-and-outlook survey of 3658 farmers released yesterday revealed that most were too worried about the drought to be concerned about deregulation.

 

Queensland Dairyfarmers Organisation president Wes Judd said most farmers had moved on from deregulation, an issue that had caused industry turmoil.

 

"Deregulation was at the bottom of the list when it came to farmers' concerns," Mr Judd said.

 

"In fact, only 5 per cent of Australian dairy farmers mentioned it at all."

 

Mr Judd said farmers displayed a surprising level of optimism.

 

At a time when four out of five were struggling with drought, 40 per cent were positive about their future prospects.

 

"The most interesting part of that statistic is that it jumps considerably if producers could gain only two to three cents more a litre for their milk," he said.

 

A federal Agriculture Department report said prices had gradually increased since deregulation, but strong competition remained among retailers.

 

Deregulation has seen the returns of producers and processors directly exposed to the consumer market.

 

Since July 1998 to July last year, the average price of a two-litre bottle had risen from just under $2.50 to just over $2.50, while average farm-gate prices had fallen from just on $1 to about 65¢.

 

Home-brand milk had 60 per cent of the market, three-litre containers had become cheaper and more popular while the price of some other items had increased.

 

The trend towards home-brand milk had applied market share pressure to traditional brands, and was a determining factor in what was paid to farmers.

 

QDO chief executive Adrian Peake said prices were not expected to change greatly over the next two years.

 

The survey revealed that producers, who were hurt badly by drought and low prices, were waiting to see how prices and weather conditions would go before increasing production or investment.

 

Cash flows had fallen and debt levels risen.

 

Queensland had about 1000 farmers producing 700 million litres of milk a year, down from a high in the early 1980s of 3500 farmers producing 500 million litres.

 

Since the start of deregulation, national production has declined about 11 per cent, most of which occurred last year because of the dry conditions.

 

A total of 55 per cent of milk is sold through supermarket chains. While whole milk dominates sales, low-fat products have been popular with consumers.