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Most of the milk in Australia is produced along the south coast and in Tasmania. I was over there almost 20 years ago and the predictions then were that the industry was in trouble for a number of reasons.
Firstly, the retailers were grabbing the largest margins for drinking milk and selling it as a loss leader. About 60% of the pool is liquid milk and 40% of the pool is processed into commodities such as cheese, etc.
Secondly, on-farm issues such as heavy feeding, poor breeding programmes, poor on-farm advice and drought, alongside structural issues such as poor succession plans, etc, were causing ownership and sustainability problems.
The writing was on the wall back then and it’s fair to say the results have played out exactly as predicted.
Peak production
Milk production peaked at approximately 11 billion litres in 2000 and is back to under 9 billion litres for the last production year.
International trade in milk and dairy products has doubled during this time. The Australian dairy industry has failed to be a bigger part of this. Australian dairy farmers have lost out.
The industry has failed to grow a sustainable business – feeding more to produce more milk does not make financial sense long term. Volume without profit for the farmer won’t work.
Despite its proximity to huge growth areas in Asia, Australian agriculture has failed as an industry to be part of that growth story.
New code of conduct for processors
This week, there was a historic milk price announcement as a new code of conduct was started.
Dairy processors had to release forward milk prices at exactly the same time for everyone to see. Farmers have 14 days to make a move if they want to switch processor.
The Australian agricultural minister said the supermarkets had devalued the dairy industry, so this is part of a first step to introduce more competition and fairness for farmers. Some farmers said the initiative gives certainty for the year ahead on a minimum price.
It’s an attempt to paper over cracks and while it might work, unless Australia solves bigger industry issues, the industry will continue to decline.
This small island of ours on the west coast of Europe now produces more milk than Australia. Why? Two big reasons.
Firstly, sustainable growth driven by a profit-driven on-farm production system and secondly, farmer-led and -owned businesses willing to invest for the long term and for growth. I feel our liquid milk sector is similar to Australia's, but that’s a story for another day.
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