July 30, 2014    

Report: Australia's dairy industry can catch up with New Zealand's
 

Australia should consider emulating New Zealand's success in restructuring its dairy industry, according to a report by consulting firm McKinsey & Company for the Business Council of Australia.

In a report commissioned by the Business Council of Australia, McKinsey said New Zealand's dairy exports and milk production has boomed at the expense of Australia's.

Australia's largest dairy group - Murray Goulburn - was blocked by regulators this year in its attempt to consolidate the industry in its US$469 million bid for Warrnambool Cheese & Butter. In defence, Murray Goulburn head Gary Helou told the Competition Tribunal that an "Australian Fonterra" will make Australian dairy competitive.

The report also pointed to the success of New Zealand's Dairy Industry Restructuring Act. Like New Zealand's dairy industry 15 years ago, Australia has a lot of potential, except that many of its farms lack the scale needed to expand globally.

The top priority for the Abbott government, if it wants to help the languishing sector, would be to cut trade deals with Taiwan and Hong Kong. It called for negotiations on the Trans-Pacific Partnership, and a free trade agreement with China to be fast-tracked.

At the start of the millennium, Australia's milk industry was comparable with New Zealand's. A decade later, New Zealand's production has doubled while Australian production has stagnated.

New Zealand's success was buoyed by economies of scale throughout its dairy supply chain, according to the report. On the other hand, Australian dairy remain deregulated and lacked the drive of New Zealand dairy.

Consequently, New Zealand's dairy farms are 80% larger than Victorian ones and the use of processing plants is 15% more. For Murray Goulburn, it spends 40% less on research and three times lesser on marketing, compared to New Zealand's Fonterra.