Phil Ryan considers himself one of the luckier dairy farmers in Australia.
The local company that turns his milk into dairy products in Bega, NSW this week proposed a minimum price of $10.40 per kilogram of milk solids for the upcoming season – he was worried it would be significantly lower.
Other farmers in the key dairy regions of Victoria and South Australia weren’t so fortunate after being offered a minimum price of $8.60 to $9.20 per kilo as they grapple with a second year of severe drought.
“We are receiving a substantial premium for farming in Bega, the home of Bega Cheese,” Ryan said. “I’m pretty happy with what Bega has announced for the region, as we suffer from less consistent seasonal conditions.”
Under the code, dairy processors are required to disclose in June the minimum milk prices they are prepared to pay for the upcoming financial year. It then comes down to the farmers to negotiate with their processors.
While milk prices are broadly higher than last year, they remain far too low for many farmers who are already struggling to make ends meet.
Rising energy, water, and transport costs are compounding their financial pressures. And to make matters worse, challenging weather conditions mean they are also forced to buy hay and grain to feed their cattle.
Regional split
Victoria, SA and Tasmania are grappling with dry weather, while NSW and Queensland are still recovering from flooding. The local dairy industry is also disappointed with the opening milk price of $8.60 per kilogram announced late last month by New Zealand co-operative Fonterra.
United Dairy Farmers of Victoria said that figure fell short of what was needed to sustain farmers through a difficult period. The association’s president, Bernie Free, said it would leave some farmers questioning their future. “Farmers are facing record costs, water shortages, failed pasture growth, and another year of intense financial pressure,” he said.
Ryan, a fifth-generation farmer who worked in IT for a decade before returning to his family business in his mid-30s, said the unusually tough conditions meant farmers were unprofitable, regardless of the milk price.
The observation underscores a critical challenge for the entire industry – nearly 70 per cent of farmers are affected by extreme weather, according to Dairy Australia analyst Eliza Redfern.
Meanwhile, national production has been dwindling over recent decades, alongside a shrinking number of farmers who are selling their land or switching to other activities, such as beef cattle.
Milk output is expected to slip by up to 2 per cent in the 2026 financial year to 8.2 billion litres, just shy of the 2020 pandemic lows, according to Dairy Australia. That is well below the peak in 2000 of nearly 11 billion litres.
Deeper woes
The dairy industry already faces significant challenges.
Farming is taxing both physically and financially, particularly compared to other agricultural activities.
Farms also need staff to milk cows twice a day all year round, and require massive capital investment for animals and equipment. Electricity represents a significant cost and is essential for milking cows, cooling and storing milk and pumping water to irrigate their land.
A key missing ingredient for the industry remains big money. While global agriculture giants invest in cropping and beef cattle, they don’t deploy as much capital in dairy because there are too many small operations.
“The long-term industry contraction in terms of production volume – which has led a number of processors to shut some of their facilities – combined with a falling national herd, will require some long-term thinking,” said Michael Whitehead, director of agribusiness at ANZ.
Dairy processors prefer to use milk for profitable products such as cheese. Angi High
Fonterra is trying to sell its Australian business, which includes eight factories in Victoria and Tasmania. That follows the sale of two processing plants by Canada’s Saputo to Coles in 2023.
However, it is not all doom and gloom. In fact, the Australian dairy industry remains healthy in many ways, thanks to strong demand at home and overseas, especially for cheese exports. Dairy Australia noted that easing inflation in South-East Asia and the Middle East, alongside weakening milk production in China, were supporting Australian dairy sales.
The domestic industry could also potentially benefit from the rerouting of products caused by US President Donald Trump’s aggressive trade policies.
“Opportunities may arise as global dynamics shift in response to formalised trade agreements,” Dairy Australia’s Redfern said.
Still, retail prices eased slightly, with three litres of full cream milk at Coles costing $1.45 per litre, down from $1.50 a year ago.
One grocery staple that consumers could soon be paying a lot more for at the checkout is butter, Rabobank warned. That’s because tight stocks and dairy processors’ preference to use milk for more profitable products, such as cheese, have pushed prices to a record high. A 500-gram block of Simply Butter fetches $1.40 per 100 grams at Coles, up from $1.28 a year ago.
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