The dairy industry is Australia’s third largest agricultural industry, after beef and wheat. But, just like any other industry, or even individual, it has its fair share of problems. And if they aren’t addressed, it could cause hiccups in the long-term viability of dairy production.

After enjoying massive highs till 2000, dairy production continues to decline every year, and many dairy farmers have chosen other uses for their land.

In this article, let’s explore the reasons for this decline but also talk about how these challenges can be faced and the strong prospects of one of the world’s oldest industries.

But first, some history!

Before the year 2000, the Australian dairy industry was regulated by both the state and federal governments. There were price controls, subsidies and all sorts of laws applied to both fresh drinking milk and manufactured milk that is used to make butter, cheese and milk powder.

These laws helped protect the income of farmers.

After the year 2000, the dairy industry was regulated only at a federal level. There were no more price protections and a huge number of farms went out of business. In fact, in Victoria, exports started ruling the market. Australia’s total milk production went down, and has not picked up in the last 20 years.

Today, farmers continue to face problems of pricing and global trends, apart from all the regular issues you all face like seasonal changes in climate, health of animals etc.

Price Transparency:

Today, dairy farmers have low bargaining power when selling their milk to processors because it is a perishable product and there is tons of competition.

Processors have a lot of power because of something called ‘indicative pricing’ – it gives them the power to change the price they pay their farmers even after the contract is set. Sometimes, these price revisions come up suddenly mid-season, leaving farmers with no choice but to pay these ‘surprise’ payments, in some cases even selling their farms to pay debts.

Certain solutions like increasing the price of milk were put in place but studies have shown that this only helped retailers and processors, and not the farmers.

Global Market:

A growing share of the industry’s revenue comes from exports. Our country’s producers have benefited a lot from this global demand, like the Chinese demand for milk powder, but bad news has also come in from other areas, like the Russian sanctions.

Export Issues:

Australia has a great relationship with developing markets around the world especially with South East Asia, Middle East and Africa, and this is bound to lead to growth in exports over the next few years.

In fact, in March 2020, the Australian government invested AU$15 million to expand dairy exports. But, this is also dependent on some factors like China’s production/consumption, EU and US’s trade balance and protectionist policies, NZ’s production and overall economic conditions throughout the world.

Environmental Impact:

Livestock farming in Australia accounts for 10% - 16% greenhouse gas emissions with dairy farms contributing to 19% of this.

But there are tons of opportunities to make the situation better. A few examples of these are practices that you all are so carefully already following. Like growing perennial crops that store more carbon, make soil richer and manage nutrients better, thus contributing to sustainable agriculture. Carbon plantings, using biofuels and bioenergy crops also will help reduce the impact on penvironment.

Livestock emissions can be reduced by modifying animal feed, maintaining better pastures, carbon sequestration (long-term storage of carbon dioxide or other forms of carbon to reduce global warming) and manure storage.

Herd Size:

Apart from these external challenges, there are other issues you farmers face within your farms like changing climates, drought, poor pasture growth, high feed prices etc. Faced with these challenges, many farmers choose to milk only a small portion of the herd, de-stock or worse, sell their farms.

There is a change in trend in agriculture around the world with a shift to huge and intensive operating systems with bigger economies of scale, and lesser number of small-scale, individual farms.

The average herd-size of farms is growing. In 1985 it was 93 cows and in 2018-19, it grew to 276 cows. But despite this increase in herd size, surprisingly, one of the factors that places a limit on milk production is the national herd size! This is because farmers are forced to sell dairy cows for slaughter, in an effort to make more money. Seasonal conditions also cause an increase in the pnumber of farm exits.

But let’s not be negative Nancys.

Every industry faces its ups and downs and the prospects for the Australian dairy industry are strong when you think of the long-term. Global dairy prices have increased and stabilized and the demand continues to be strong with the rise in incomes of people and huge demand for dairy-based products like baby formula.

Local and foreign investment for dairy assets, especially in Tasmania and Victoria have upped in the past few years.

SWOT analysis:

This SWOT analysis (Strengths, weaknesses, opportunities, threats) will help give you a quick view on the different aspects of the dairy industry:

STRENGTHS:

Efficient production methods

Well positioned for growth in exports

Major exporter

WEAKNESSES:

Volatile climate

Buy retail sell wholesale

Uncertainties in policies

OPPORTUNITIES:

Management of production risk

Increased demand from Asia

Attainment of greater efficiencies

THREATS:

Input prices

Protectionism in competitor markets

Climate change and global warming

The Way Forward:

Former Victorial premier John Brumby once said that Australians need to talk about dairy. “There really is no regional industry that has such an impact in Australia as dairy,” he stated.

The dairy industry contributes 40,000 direct jobs and 100,000 indirect jobs. The dairy industry is responsible for a big part of Australia’s prosperity.

The deregulated nature of Australia’s dairy industry and its growing export market shows that the country is poised to meet growing global demand. The demand for dairy products throughout the world remains strong.

While the Australian Government is taking action to help farmers like you through Sustainiability Frameworks and similar practices, there’s a lot that you can do within your own farm to help improve production and profits.

Accordingly to Analyst, David Beca, farm profitability is a key issue that needs attention now. According to him, the problem did not lay with factors outside the farm gate like milk price, the weather, the government or industry structures. “Actually, the problems are on the farm and the farmers could actually fix the problems themselves.”

Here are a few key takeaways from his words of wisdom!
  • Decreasing amount of pasture in the cows diet leads to increase in production costs
  • High amount of home-grown grass directly harvested by cows helps in reducing production costs
  • Farmers should increase percentage of pasture in the diet – this will help increase profits
  • The goal is not to maximize milk production or maximize pasture production but to minimize cost of production and maximize profit margins

If the recent trends are studied, it is highly likely that domestic dairy consumption will overtake domestic supply within the next 7-10 years. This means a world of opportunities for farmers like you to fill up the gaps in supply with your high-quality milk!

Use pasture.io to help you look inwards and change up your business practices and use innovative technology and tools to up your productivity rates. Our service will give you the advice you need to adapt to risks and face challenges head-on.

So while the industry does face a number of challenges, there are solutions to these issues that are slowly being addressed. This is the need of the hour – so that farmers like you can adapt to challenges, increase profits and gain the confidence to invest and grow your businesses.

Let’s close with these encouraging words from the Australian Dairy Farmers: “While the dairy industry has been under intense pressure, we are also an industry that has the know-how and resilience to overcome adversity and thrive in the long term

- The Dedicated Team of Pasture.io, 3 September 2020