Australian dairy sector remains 'cautiously optimistic'

- Last updated on GMT

Related tags: Dairy, Australian dairy, Milk, Dairy product

Dairy Australia, the Australian dairy industry association, has
hailed innovative dairy categories for driving domestic growth, but
warns that the performance of traditional dairy categories is still
weak, hampered by declining demand and a strong international
commodity market, as Tom Armitage reports.

Despite still recovering from a highly-publicised July drought​, which has since left Australian dairy farmers seeking to regain control over dairy product prices and commodities, the report claims that supermarket sales across all dairy categories - worth an estimated AUS $ 1.1 billion - have been consolidated by a surge of consumer interest in innovative dairy categories.

According to the report, a number of traditional dairy products have been revamped in a bid to appeal to a wider range of consumer groups. Custard, for instance, has seen a sales increase in excess of 25 per cent on the previous year as a result of the development of chilled, portable, ready-to-eat versions of the product, previously available only in powdered form. Marketed at young consumers in particular through the use of cartoon character endorsements, the ready-to-eat custard is seen as a good way for dairy processors to penetrate the lucrative Australian snack market.

The raft of offerings in the field of dairy desserts has also helped bolster sales, with health-orientated alternatives such as low-fat fromage frais, as well a number of so-called impulse products like indulgent chocolate mousse, contributing to an overall sales increase of 12.5 per cent.

However, this increase in sales of innovative products is offset by poor performances from more traditional dairy products, especially chilled cream and condensed, evaporated and powdered milk. Retail sales of powdered milk are down 4.2 per cent, and chilled cream sales have suffered particularly badly, seeing a 10.8 per cent decrease in retail sales against 2003 figures.

But, as the report claims, Australian dairy commodity prices are still heavily under the influence of the wider international market - particularly that of the export market to neighbouring Asia.

According to Dairy Australia​ statistics, 50 per cent of Australia's milk output is currently exported and an increased demand in recent months for milk powders and cheese from China and Japan respectively has given Australian dairy farmers cause for cautious optimism.

Similarly welcome news for Australian dairy farmers is that the stable internal EU dairy market, together with trailing stock levels from other global suppliers, has led to the overall strengthening of international dairy prices - which is set to remain the case for the short-term future.

However, the report also errs on the side of caution, claiming that the domestic EU dairy market may soon be subjected to governmental regulation, which will slash export subsidies and lead to lower commodity prices of butter and skimmed milk powder (SMP), undoubtedly creating a negative knock-on effect for global, and hence Australian, dairy commodity prices.

In the medium to long-term outlook, a higher rate of dairy export activity in the EU, stemming from reduced competition, should continue until Australia and New Zealand have recovered their dairy stocks, the report suggests.

Related topics: Markets

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