Australian dairy farmers are experiencing significant financial pressure following a 15% cut in farmgate milk prices by major dairy processors including Fonterra Australia, Saputo, and Bega. This reduction comes amidst escalating competition from dairy imports and a sharp decline in local milk production, which has reached its lowest level in 30 years.
Recent reports highlight that the sector has been struggling with a series of challenges, from severe drought conditions a decade ago to a retroactive reduction in milk prices in 2016, compounded by difficulties in securing farm labor, increasing farmland costs, and the persistent risk of drought and floods. These factors have contributed to a decline in the number of operating dairy farms and a disinterest among younger generations in pursuing dairy farming as a career.
The reduction in milk supply and increased import competition have led to the closure of 10 dairy processing facilities in Australia over the past 18 months. Ben Bennet, president of Australian Dairy Farmers, voiced concerns to ABC News about the sustainability of the industry, noting that the new price cuts could further diminish the local milk pool as more farmers might exit the industry due to unsustainable financial returns.
Adding to the complexity, Fonterra Australia’s managing director, Rene Dedonker, noted that while domestic milk sales remain strong, sales of cheese and butter are declining due to the influx of cheaper imported products. Dairy Australia’s statistics reveal that dairy imports have nearly tripled in the last two decades, exacerbating the challenges for local producers.
The export market also presents difficulties, with a recent 17% drop in Australian dairy exports, paralleled by a 19% increase in imports. These market shifts are partly attributed to increased domestic production in China, fueled by significant government investment, reducing the country’s dependency on imports.
In a strategic move, Fonterra has announced plans to exit the Australian market as part of a global restructuring. The company intends to sell its well-known dairy brands like Anlene, Anchor, and Fernleaf, to focus more on its ingredients business. This decision follows the sale of its ingredients business in Australia and its consumer and foodservice operations in Sri Lanka, signaling a significant shift in its operational focus.
These developments reflect broader trends affecting the global dairy industry, highlighting the need for Australian dairy farmers to adapt to rapidly changing market conditions and consumer preferences.
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