The Australian dairy supply chain – the great reset, a report from agribusiness bank Rabobank, says a number of events have caused significant tension right along the dairy supply chain, with three key instigators – a 20-year low in national milk production, internal challenges in Australia’s largest dairy co-operative and the reset in farmgate milk prices to better align with global markets.
Rabobank senior dairy analyst and report author Michael Harvey said there had been unprecedented changes in a short time frame.
“There is no doubt Australia’s dairy supply chain will emerge from this looking vastly different and almost unrecognisable,” he said.
He said there was short-term uncertainty and potential business disruption for dairyfamers but there was also opportunities for some farmers – particularly related to choice to supply new markets and more commercially attractive supply contracts.
The report says the fall in milk production, along with the anticipated slow rebuild, is set to see competition for milk among processors remain fierce – changing the way milk is procured in Australia’s southern dairy region.
Mr Harvey said milk supply is down across all dairy regions – it’s lowest level in 20 years – with the largest drop in northern Vic, which accounts for 50 per cent of the decline.
He said Rabobank was forecasting a small bounce in Australian milk supply in the 2017/18 season, in the vicinity of 2.5pc, with a medium-term prediction of 1.8pc growth each year.
“Based on this forecast, and assuming no major market or atypical climatic disruptions, national milk production is not expected to pass the 10 billion litre mark again until 2020/21,” he said.
“This will see processors continue to scramble for milk and adopt aggressive milk-supply programs as they try to recruit milk and minimise excess capacity.
“We are also seeing a break-down in loyalty between dairy farmers and processors, with farmers more willing to move processors, which is having repercussions across the supply chain.”
Mr Harvey said at least 700 million litres of new primary processing capacity would come online across southern Australian this season, with much of this tapping into cheese export market opportunities.