Australian dairy production falls to lowest level since 1990s

Australian milk production fell to just under 8.8 billion liters in 2018-19, following two consecutive seasons marked by high input costs and unfavorable weather conditions.

National Australia Bank published the figure this week, sourced from the Australian Bureau of Agricultural and Resource Economics and Sciences, in a report on the dairy sector, showing that production is now at its lowest since 1995-96 (8.7 mega liters). Forecasts from industry group Dairy Australia predict that production will fall again this year to 8.3-8.5 billion liters.

On inputs, NAB found that feed prices remained high at A$316 ($217; €196) per tonne in January to date, although this was lower than the high of A$386 per tonne seen in October 2018. “Following miserable yields this season, [it is] hard to see much downside until there is a good break,” NAB said in the report.

Water prices are also affecting the sector, with irrigation-dependent farms in northern Victoria forced to grapple with “extremely high” temporary water prices. NAB cited the example of the Lower 3 Goulburn Valley zone that has recorded an average temporary water price of A$664 per ML in January 2020 to date, which the bank described as “a major challenge.”

Weather conditions have exacerbated these problems. NAB described 2019 as a “rotten” year weather-wise but said the impact of the seasonal conditions on the dairy sector had been region-specific.

South-west Victoria, south-west Gippsland and much of Tasmania had enjoyed reasonable conditions for most of 2019, NAB said, but East Gippsland has been extremely dry and has been hit hard by bushfires, while high feed and water prices have reduced the competitiveness of the sector in northern Victoria.

NAB said: “What is needed to arrest falling production is a better season easing input costs, but our longer-term concern is that an increase in permanent plantings (eg almonds) in the Murray-Darling Basin will structurally increase the price of water in northern Victoria. In the absence of lower water costs, it is unlikely that northern Victorian production can grow.”

International demand remains strong, although growth has been “perhaps slower than some expected”, NAB said, and farmgate milk prices are very strong by historic standards.

The bank described Tasmania as an “ongoing success story”, as the state’s share of Australian milk production has almost doubled to 10 percent over the past 20 years.

“A mild climate combined with ample water availability has made dairy a compelling proposition in the state,” it said.

Dairy Australia called for the sector to get “investor ready” as part of a draft sector-wide strategy, called the Australian Dairy Plan, that was published in December 2019.

In its outlook for 2020, the industry group echoed much of NAB’s findings: “While tempered by well-balanced global markets and domestic value growth aside, current challenges are dominating the short-term outlook for Australian dairy.

“High costs of production continue to affect profitability, despite the strong farmgate milk price, and milk production will likely decline further. For some farmers, expensive feed will be a nuisance in an otherwise good year; for others it will represent an ongoing burden as they wait for the drought to break.”