February 14, 2012

Dairy Australia, a dairy industry research body, says the country's milk production is increasing due to lower feed costs and good weather.

In its latest seasonal update, Dairy Australia says farmers produced nearly 4% more milk in the six months to December than the same time last year.

Good season conditions, lower cost of feed and high water allocations are boosting morale in the southern dairy production regions.

But dairy farmers, who produce milk for the domestic drinking market, are more worried about where the industry is going.

Dairy Australia's Jo Bills, says people are drinking more milk, but the supermarket milk price war is still causing concern.

"In Queensland and Western Australia and also northern New South Wales which supplies that Queensland market, the focus there is on drinking milk sales," she said.

"We are 12 months into the dollar per litre milk and that doesn't look like shifting any time soon, and that's really putting pressure on profit margins right through that supply chain in those regions.

"It's not a problem more milk is being sold, but I guess the issue for the industry is the value of those sales - they're actually less than 12 months ago.

"That reflects at 10% drop in the average retail price for drinking milk."