Dairy industry's slow, modest milk price recovery likely to occur

Dairy Australia managing director Ian Halliday said the slow growth would be better for the industry in reducing some of the recent volatility in the global market.

“If prices did recover quickly, we might see people start to chase that,” he said.

He said this could leave the industry in a similar situation to last year, when oversupply and short demand lead to a drop in the global price.

In general, Mr Halliday said international markets were starting to improve, with major player China returning, while input costs on grains, hay and fertiliser had lowered.

“The outlook is one of caution but there are some green shoots into the year,” he said.

Former Australian Dairy Farmers president David Basham said prospects appeared to have improved in the coming months, particularly with the good season.

“Having a couple of months’ extra in pasture growth helps out enormously,” he said.

He said there were also positive signs in SA, with increased demand from new processors.

He said the Midfield Group’s dairy plant at Penola was expected to open midway through the year, with a capacity of 250 million litres of milk.

The Murray Bridge processing site of Beston Global Food Company is also expected to increase its capacity, and will be looking for an extra 80mL.

“SA produces about 530mL so that’s a fair whack of what’s available,” he said.

He said if the farmgate price continued to rise it would allow farms to get some stability back.

“It is going to be a bit of ‘wait and see’,” he said. 

“If we are blessed with good seasonal conditions we might be able to recoup some losses, but if seasonal conditions are tougher, then it may be another breakeven year.”

This year, the results of two inquiries into the dairy industry will be delivered: a Senate Inquiry, due late next month, and an Australian Competition & Consumer Commission inquiry, due in November.

Mr Basham said he was optimistic about the potential of the ACCC inquiry.

“It has very wide scope and hopefully we can look at all the supply chains and weakness, in order to strengthen the industry,” he said.

Mr Halliday said the ACCC inquiry would consider suppliers’ choice in processes, contracts, transparency of information to allow farmers make decisions, and profitability across the supply chain, including the $1/L milk issue.

He urged dairyfarmers to get involved in upcoming roadshows.

Mr Basham said one positive out of the 2016 price drop was the consumer response.

As the public heard about the plight of dairyfarmers, they looked to do what they could, spreading the message to avoid $1/L supermarket homebrand milk in favour of branded milk.

Mr Halliday said this reaction resulted in a shift in spending from a 65pc market share of fresh milk to supermarket brands, to something closer to equal share for homebrand and private labels, although this trend slipped back late last year.

“It’s a challenge for the industry to keep this going,” he said.

SA Dairyfarmers’ Association president John Hunt said the key issues he would like to address in the coming 12 months were improved transparency from processors and a look at some of the rising costs in the industry.

He said rising power costs were one area which needed to be considered, with ways to make farmers more self-sufficient, as well as the amount of cost recovery through state government levies.

“It feels like they’re double, or even triple dipping,” he said.