Drought-hit Australian dairy farmers see improving fortunes

- Last updated on GMT

Related tags: Dairy, Australian dairy, Milk

Last year's drought conditions had most Australian dairy producers
fearing the worst for 2004, but a new report suggests that the
situation for all four main dairy product categories - yoghurt,
cheese, drinking milk and dairy spreads - is likely to be much
better than had previously been expected.

The Dairy 2004: Situation and Outlook report commissioned by Dairy Australia predicts good growth for the dairy industry in 2004, in part as a result of a major new promotional campaign introduced in response to the drought and designed to encourage the domestic consumption of dairy products.

With four out of every five Australian dairy farmers having been adversely affected by the drought, which lasted for several weeks in June and July 2003, a speedy recovery is vital for the long-term development of the sector, the Dairy Australia report said.

Milk production levels declined by 11 per cent on the previous year as a result of the drought, but even more worrying is the revelation that 55 per cent of farmers questioned by the association said that they had failed to return to pre-drought stocks, with many counting the cost financially - an estimated 90 per cent claim not to have fully recovered from the excessively hot weather.

But Australian dairy farmers have not been alone in suffering from shortfalls in production, and the report suggests that the strong export presence of the Australian dairy industry (more than 50 per cent of its milk output is exported, with Japan, Malaysia, the Philippines, the EU, US and Saudi Arabia its major customers) could help provide some kind of return to normality.

International dairy prices have steadily increased on the back of improved global demand and shortfalls in dairy commodities from key producing countries, leaving a welcome gap for the Australian dairy sector to plug, the report suggests.

Dairy Australia estimates that skimmed milk powder (SMP) is selling on the international market for US$2,200/tonne, 30 per cent up on pre-drought levels in June 2003, and the current international cheddar and butter prices stand at $2,800/tonne and US$2,000/tonne respectively - both the strongest on record.

Production levels in other countries are also likely to help Australia's cause. EU milk production, for example, is trailing 2 per cent on the previous year and the trading bloc still has limited fresh production of some dairy products, namely butter and SMP, offering more opportunities for Australian producers on export markets.

In a bid to increase production, the EU has also significantly slashed export subsidies for all dairy commodities - SMP by 55 per cent, cheddar by 38 per cent, and butter by 30 per cent - while falling stockpiles in the major EU and US markets are also contributing to a more positive global market, Dairy Australia said.

Growth in the domestic Australian market, meanwhile, is being heavily swayed by consumer demand. Supermarket sales across the four main dairy categories have all increased in both volume and value, with sales in excess of A$3.5 billion for 2003/4.

According to the report, the main factor behind the surge in Australian dairy products lies in increased consumer confidence, with drinking milk sales showing the largest area of growth - up 2 per cent - bringing 2003 totals to 1.96 billion litres. The decline in regular milk sales was offset by increased sales of reduced and low-fat milk.

The report also makes interesting reading for the packaging industry; nearly 30 per cent of all Australian supermarket milk, and 47 per cent of fresh regular whole milk, was sold in three-litre plastic bottles.

Manufactured Australian dairy products have also seen a sizeable increase, with cheese production up 4 per cent, and whey powder up 8 per cent, with companies optimising their available milk resources. Production of whole milk powder was down 4 per cent, and skim milk powder down by 5 per cent.

In the long term, Dairy Australia predicts that the future of the Australian dairy industry will be inextricably linked to both the performance of the global economy and the global supply situation. The medium to long-term outlook is for global supplies of dairy commodities to remain squeezed - due to trailing stock levels from both the EU and the US - thus further stabilising the international price for dairy commodities.

Related topics: Markets

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