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Australian Dairy Needs Increase Growth to take Advantage of Global Demand

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article image Rabobank Senior Analyst MIchael Harvey

According to Rabobank ’s report ‘Australian Dairy – Stimulating the appetite for growth’, the global demand for diary has been increasing at more than 2% a year, which offers the Australian diary sector plenty of room for growth. However, at this current rate of production, the report says Australia cannot match this rate of growth.

Report author and Rabobank Senior Analyst, Michael Harvey says there is set to be a good growth in the Australian milk production in 2011/12, however, there had been a reduction problem in recent years. These were mainly due to the drought, the global economic downturn and reduced farm profitability. In 2010/11, Australia’s milk production was estimated at 9.1 billion litres, which was below the national milk pool record below the 11.3 billion litres in 2000/1.

The report states Australian diary farmers are facing the pressure from its dairy export customers to grow with questions being asked about its future dependability as a supplier. However, the Rabobank report also says there are significant market opportunities for growth in the medium-term (beyond 2011/12), particularly in the global markets.
Increasing world population, improving incomes as well as the growing popularity of dairy products, particularly among developing countries, has helped fuel the strong demand. Yet, Australia’s dairy supply chain has several obstacles that need to be confronted before the sector can ‘unlock’ its growth, says Harvey.

“Australian dairy producers remain focused on sustaining profitability, rather than production growth. The sector is lacking confidence and tenacity for capital investment needed to drive sustained growth. This lack of appetite across the farm sector is a by-product of a decade of very difficult season conditions, including consecutive droughts, a global economic crisis, eroding equity levels and undefined rice signals beyond the immediate future,” says Harvey.

The bottom line though is that Australia remains a competitive place to produce milk with the next decade likely to present an opportunity for sustained growth with fewer production interruptions, says Harvey.

There is a return to profitability for most dairy farmers driven by a recovery in the commodity market, lifting farmgate prices in 2010/11. There are also good prices signals for the season ahead, which would help maintain farm profitability, says Rabobank report.

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