Australian dairy manufacturers will always work hard to ensure dairy retains its place in the minds of customers that have come to demand our products, at home and abroad. Despite a difficult operating environment, manufacturers across Australia emphatically demonstrated their commitment to a thriving and trusted industry with record high opening prices for the 2023-2024 season.
However, in a time where food security is paramount, and sourcing locally aligns with the values of our customers and consumers, it’s timely to consider the whole Australian dairy industry landscape and what this means for dairy manufacturers – ‘as the hits just keep on coming’.
Raw milk production is at a record low of around 8 billion litres; input costs continue to climb; import volumes are surging; compliance constraints grow, not the least of which is the Dairy Code of Conduct … and we’re losing our ability to remain cost competitive on the global market.
For the second time in two weeks, New Zealand’s Fonterra Co-operative Group have revised down this seasons forecast farmgate milk price (FMP) midpoint to NZ$6.75 per kilogram of milk solids (AUS$6.64kgMS), in response to global dairy prices plunging to their lowest level in five years.
Whilst good news for Australian dairy farmer, this unprecedented $2.76 or 29% differential in FMP is making Australia an increasingly uncompetitive place to manufacture dairy products.
With our open market access, Australia is a guaranteed domestic market for cheaper New Zealand butter and cheese. Cost-of-living pressures on Australian consumers means buying cheaper imported butter or cheese is no longer a choice but a necessity. Unsurprisingly, by May 2023 (YTD) imports from New Zealand were up 28% (52% share).
Our export volumes dropped to 16.4% (137,000 tonnes) in June 2023 (YTD). If we cannot keep our costs of production globally competitive, our export competitiveness will continue to erode impacting demand for milk in those export states. Inevitably, dairy manufacturers will have to stop seeking to export around three billion litres of milk equivalents.
Unless change is installed to rebalance the value chain, there will be major implications on domestic supply and Australian exports. Significant transformation and reduction in long term capacity will lead to job losses, reduced investment in regional communities, and impact farmers who currently benefit from having manufacturing assets in their region.
Whilst managing extreme and challenging global market forces is not new, Australian dairy manufacturers – unlike New Zealand and other competing nations – are bound by a Dairy Code of Conduct, whereby FMP must be locked in 13 months out from the seasons end.
The Code’s one-sided negotiation framework is fostering major pricing challenges through a lack of regard for the commercial realities of a volatile global market.
The 12-month review of the Dairy Code remains outstanding. The second review, that can be scheduled from 1 January 2023, has not occurred. A genuine second review of the Dairy Code must take place as a matter of urgency to avoid unintended consequences.
The FMP reduction in New Zealand cannot be glossed over and dismissed in Australia. The growing disparity in milk price – and the factors driving it – are having profound implications for the Australian dairy industry.
Dairy manufacturers want to see our whole industry come together to help elected representatives land the policies required to secure dairy’s future. Australian consumers want a thriving, sustainable dairy sector offering great local products. The Australian government wants more manufacturing jobs in regional areas, export growth and lower levels of food inflation. We can find universal alignment, but we must adjust key settings to enable Australian dairy’s success.
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