Business as usual for WA dairy industry as China’s lack of consumption hits global prices by 20 per cent

Dairy milk is expected to keep flowing into Western Australian processors unscathed by the global trend hitting the dairy export commodity market, after a 20 per cent drop in global dairy prices.
While China’s economic woes have hit the Australian dairy export sector due to the lack of consumer demand, WA’s fresh milk production will likely remain “insulated” from the pressure on the eastern states export sector.
The Australian dairy industry has been grappling with the impact of COVID-19-related disruptions and economic headwinds since 2020, and ANZ’s most recent Agri Commodity Report revealed there was “no end in sight”.
ANZ Australia institutional head of food, beverage and agribusiness Gerry Karam said global dairy prices had been falling for several months, particularly as Chinese consumers reduced their consumption of dairy products in increasingly volatile economic times.
“This trend highlights the greater vulnerability of a market such as China, where the consumption of dairy products is somewhat discretionary to consumers, which means they are more likely to dip in consumption in economic downturns,” Mr Karam said.

WAFarmers Dairy Section president Ian Noakes said WA was immune to the majority of global trends that impacted the Eastern States’ dairy export sector.
“It shouldn’t have an impact in WA because the vast majority of milk sold into the local market goes into fresh product,” Mr Noakes said.
He said prices had come back in Victoria and Tasmania but the Dairy Code of Conduct was providing “security to dairy farmers” in the Eastern States in the short term.
He said when contracts come up for renewal in the next 12 months farmers could possibly be offered lower farm gate milk prices than delivered by processors in July.
“It will be interesting to see what happens next year,” Mr Noakes said.
Mr Karam said China’s economic woes had thrown the global dairy product market into a period of oversupply, with any recovery in global dairy prices most likely to occur in the long-term.

“While the global milk levels may be in oversupply, for Australia, the reverse continues to be the challenge,” Mr Karam said.
“The opening of the farmgate pricing season saw the different dairy processors competing for the dairy producers by bidding prices to record highs, as they sought to gain access to a share of Australia’s continually shrinking national milk pool.
“Having set these high prices with producers, a number of Australia’s dairy processors are now in the challenging position of having paid higher prices for supply, while facing an outlook of reduced export prices.”
High farmgate prices, combined with other drivers of food and inflation, have seen strong rises in the domestic retail price of many dairy products including butter, cheese and yoghurt.
Mr Karam said those high retail prices could reduce consumer purchases but the impact on processors was “yet to be seen”.
“Interestingly, Australian milk production has seen a small and rare increase in production for a period this year, possibly as a result of some post-drought herd rebuilding,” he said.
“Overall, however, the national milk production levels look set to fall to around eight billion litres, the lowest in 30 years, a trend that increases the need for the dairy processing sector and retailers to look closely at their ongoing strategies.”
Rabobank also reported that Chinese consumer confidence remained low, raising questions about when dairy consumption growth rates would return to “normal” levels.
In its August 2023 Agri Commodity Markets Research, Rabobank anticipated Chinese import demand to increase, as strong local production tapered off due to the high cost of production as milk prices moved lower and feed costs rise.
Mr Noakes said the biggest issue for the WA dairy industry was “too many farmers leaving” and not enough coming into the industry.
“There will be a longer term struggle to keep up supply,” Mr Noakes said.
He said dairy processors in WA stood to lose the most from a decline in supply and they needed to do more to assist younger farmers into the industry, especially after farm land prices increased by 50-100 per cent in the last few years.
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