Lower export prices are a result of weakened global demand for dairy products, particularly from China. Cost of living pressures continues to impact how consumers spend and as a result, importers globally are buying substantially reduced volumes of product.
The bright spot for Australian dairy farmers is the strong farmgate milk prices set for this season.
Competition for milk amongst processors was fierce following the announcement of minimum milk prices at the start of June. Despite a five percent contraction in milk flows during the 2022/23 season due to weather, flooding, labour issues, resource competition, and farm exits, growth was recorded in the final months. As we transition to spring, the Australian milk pool is expected to see further year-on-year growth, recovering from last season's production dip due to flooding.
“Strong farmgate milk prices place Australian farmers in the best possible position as the industry faces challenges,” said Dairy Australia’s Industry Analyst, Eliza Redfern.
“Australian farmgate milk prices run counter to trends in the global market. New Zealand in particular, has seen a rapid drop in milk prices, far below Australia's levels. Additionally, stiff competition of dairy products from New Zealand and the northern hemisphere being sold in Australia and internationally, presents a difficult landscape for Australian manufacturers to operate in,” said Ms Redfern.
Other global dairy exporting regions like New Zealand, the United States, and Europe initially recorded production growth in 2023 but are now stabilising. Variable weather conditions and declining herd numbers, along with tightening margins, are also factors at play.
Dairy has continued to deliver value growth in the retail sector and is a prominent product category for Australian retailers. Dairy retail prices have increased at the fastest rate compared to all other food groups, with the total value of dairy products sold offsetting any declines in volume sold. Fresh milk ranks third in total retail market value growth, closely followed by cheese in fourth place and yoghurt in ninth*. Dairy retail prices have risen faster than those in other food groups, with total dairy product sales compensating for lower volumes sold.
After a temporary easing in the first half of 2023, farm input costs are climbing again. The Ukraine conflict has disrupted global fertiliser and grain trade, impacting Australia's market. While global fertiliser prices have eased, Australian suppliers are facing growing demand, with reports of urea rationing.
Additionally, there are heightened risks and regional variations to the outlook for homegrown feed. The yet-to-be-declared El Niño event could bring drier conditions, weighing on feed availability. Overall, yields are expected to be average, supported by larger crop planted areas, but minimal feed price declines are anticipated.
For more information and to view the latest Situation and Outlook Report visit dairyaustralia.com.au/sando
* NielsenIQ retail wrap up Australia Q2, 2023
