The Australian dairy industry is at “a critical juncture” regardless of reaching record-breaking profitability after a “rollercoaster ride” for the previous decade, in keeping with Rabobank’s Australian Dairy Industry: At an Important Juncture report. It stories that Australia’s dairy sector has skilled a exceptional turnaround, underpinned by beneficial seasonal situations, excessive farmgate pricing, and a shift within the stability of energy throughout the provide chain as a result of rising competitors for milk provide and the introduction of the Dairy Industry Code of Conduct.
In spite of the constructive developments, the report notes there may be a must reboot in an effort to obtain a much-needed growth in milk manufacturing. It says that such a transfer can be “vital” for the longer term success of Australia’s dairy industry in an effort to benefit from growth alternatives in export markets.
Report writer, Rabobank senior dairy analyst Michael Harvey mentioned in recent times the Australian dairy sector had navigated a “perfect storm of widespread drought, isolated bushfires and floods – all coupled with a severe global market and unprecedented industry disruption and instability”.
“This turmoil resulted in a squeeze on the profit pool and a drop in milk solids produced,” Harvey mentioned. “It also zapped farmer confidence, which ultimately heralded a major shift in how the supply chain operates.”
Harvey added that whereas some restoration in nationwide milk manufacturing has been underway, to this point the milk provide response “underwhelmed initial expectations:”.
“The Australian dairy supply chain processed 8.86 billion litres of milk in 2020/21, 950 million litres less than in 2014/15, with 55 per cent of the fall coming from the northern Victoria irrigation system,” Harvey mentioned, including that increasing Australia’s milk provide is important to the growth of the industry because it goals to assemble sustained growth outdoors of a maturing home market.
“A vibrant industry requires a strong presence in growing export markets and being able to fully leverage existing access to Asian supply chains,” Harvey added. “Australian dairy has some strong global market credentials, but a lack of a sustained growing milk pool is a weakness to overcome. Even with the mature domestic market, demand from key customers is outstripping supply growth, and many customers in the industry will require more volume over the next decade.”
The report said that with the Australian dairy provide chain experiencing a scarcity of milk solids and the foundations in place for a interval of funding, the stage is ready for the industry to take benefit.
“If this strong run of healthy farm profitability, elevated investment ambition and positive investment outlook does not result in some well-executed long-term investments, it will be a missed opportunity for the industry in reigniting growth,” Harvey mentioned. “And to fully unlock growth, significant long-term capital investment is required to increase efficiency and production capacity.”
The report indicated that Australia’s dairy sector is anticipated to offer worthwhile capital funding alternatives for farm companies over the following decade. As such, it harassed that investing for long-term growth is not going to be the suitable technique for each dairy farm enterprise.
“While a growing industry is vital for the wider sector, the reality is that farm businesses should only invest in growth if there is a profitable and sufficient return based on any planned investment strategy,” Harvey mentioned. “And for enterprises willing to invest, a well-structured plan and consideration of capital at risk is required.”