Challenging market conditions prevail as the new milk season approaches 

The Australian Dairy Products Federation is warning of dire outcomes across the country if something is not done to reign in some of the issues impacting the milk processing industry.

ADPF executive chairman John Williams said with less than one month out from the new 2023-24 milk season opening, the volatile global markets, challenging local conditions, and inflationary pressures have grown, causing the industry much concern.

Twelve months ago the federation cautioned that the then unprecedented record farmgate milk prices on offer were going to place enormous pressures on dairy manufacturers but what has played out since then has been even more concerning for the sustainability of dairy manufacturing in Australia.

Mr Williams said the current operating conditions for manufacturers are tough and need to be countered so that regional jobs and economies are not hit hard if processors are forced to rationalise their operations.

“In the lead up to the new milk season, on top of the decline in global prices, Australian dairy processors are contending with low volume growth, exorbitant overhead and input costs (inclusive of energy, transport and raw milk), a tough and highly competitive domestic trading environment, and rapid growth in import competition,” Mr Williams said.

“For example, year-to-date (February 2023), the volume of imports from New Zealand are up 22 per cent and imports from the US are up 46 per cent.

“The current 20 per cent higher farmgate milk prices being paid in Australia compared to NZ, places Australia at a competitive disadvantage not only in export markets but it is also being reflected on our supermarket shelves with NZ made cheese and butter priced significantly cheaper than Australian made products.”

That’s in comparison to the weighted average announced southern region farmgate milk price for the 2022-23 season of $9.60kgMS.

The Australian Wholesale CMV has dropped 17 per cent during this same time, to $8.25kgMS (versus $9.99kgMS).

Despite inflation related cost of living pressures, encouragingly the demand for nutritious dairy products continues.

“To participate as a viable supplier to meet this demand and provide confidence in the security of Australian manufactured products to our customers, we need more of that core ingredient of ‘raw milk’ and this currently is a leading challenge for the Australian dairy sector,” Mr Williams said.

Australia’s year-on-year national raw milk production volumes are decreasing, down to 8.5 billion litres in 2021-22, and forecast to fall slightly below eight billion litres for the 2022-23 season, or a further six per cent drop compared to the 2021-22 season.

This downward trend is forecast to continue in the 2023-24 season, falling a further three-four per cent to 7.8 billion litres.

“Australia is home to some of the worlds most advanced and modern milk processing technology available but without confidence current milk production trends will turn the right way, the Australian dairy processing industry will have to make decisions to reduce capacity and capability,” Mr Williams said.

From June 1, 2023, Australia’s dairy farmers will have a month to assess farmgate milk price offers and contract terms from processors as the annual 2023-24 milk season opens.

Under the Australian Competition and Consumer Commission Dairy Code of Conduct implemented in January 2020, buyers of raw milk are obligated to complete and make publicly available Milk Supply Agreements by June 1, including milk price.

This requirement is unique to Australia — no other commodity market in the world requires processors to announce farmgate milk prices 13 months out from the seasons end, risking processors viability in a market where the costs of Australian products are not competitive with imports.