Industry Impacts from COVID-19

The COVID-19 pandemic looks set to usher in a new era for the global economy from which the dairy industry will not be immune. Australian dairy is in a fortunate position, heading into this period with relatively strong domestic demand and a weakening A$ that will provide some insulation from international market pressures and the uncertainties that now underpin the industry outlook.

However, as national and per-capita incomes decrease in many countries, demand for premium priced dairy products is likely to slow. Similarly, despite an initial lift in sales as consumers ‘panic-bought’ household essentials including dairy, the looming economic recession will impact the purchasing power of Australian consumers in the medium term. This is likely to upset recent growth in value-added product lines and risks prompting a return to discounting strategies by major retailers. The food service sector, a high returning market for dairy, has been hardest hit and is expected to take years to recover. COVID-19 has accelerated new ways of purchasing with online shopping booming, as well as a return to more eating at home. This is likely to have an impact on future marketing and product offerings. Dairy will also need to rise to the challenge and opportunity this presents.

From a trade and market access perspective, an increase in international protectionism would undermine years of progress in achieving market access on fairer terms. An oversupply of milk in the northern hemisphere has led to increased pressure to reintroduce or implement various forms of government intervention. This could include market-distorting commodity price support programs, such as purchase-and-storage subsidies (known as intervention storage) and export subsidies, as well as subsidised schemes to limit production. Import- dependent markets may experience a renewed interest in sheltering domestic production as part of attempts to bolster food security and political security.