A new research report by ANZ has revealed an opportunity for Australian dairy farmers to increase their industry’s annual production of milk from 9.2 billion to 15 billion litres. Fast growing demand for dairy in countries such as China, Indonesia, The Phillipines and Vietnam has opened up this booming opportunity which experts say Australia should capitalise on, or risk losing out to competitors.
The report, titled ‘Looking for a Sign’ points out that Australian dairy farmers, which currently account for two per cent of the world’s milk production, are held back by a lack of confidence and capital.
The paper suggests that adjustments to key farming variables would allow the industry to increase its production and take advantage Asia’s growing middle class and their increasing dietary preference for dairy.
ANZ’s General Manager of Regional Business Banking, Christine Linden, said the agricultural sector’s growth would offer significant employment opportunities on farms, in processing and in the services sectors.
“As we benefit from Asia’s growing population and expanding middle class, we need a renewed focus on agriculture and the dairy sector in particular, to help underpin a stronger and more profitable regional Australia,” Ms Linden said.
ANZ’s Head of Agribusiness Mark Bennett said the new report showed that domestic dairy consumption had barely changed over the last decade.
“We believe this [lack of domestic growth] can be offset with the significant opportunity the Asian market presents – for example, in the past year, Australia saw a 31 per cent increase in dairy export volume to The Philippines,” he said.
“The emerging Asian market opportunity is significant and the added impact of the ChinaAustralia Free Trade Agreement, especially when China’s milk demand is supported by 70 per cent imports, means Australia is now even better positioned to capitalise on meeting China’s increased demand.”
Mr Bennett also said that if dairy producers can adjust key variables such as herd numbers or calving cycles, the industry could increase milk production by around 15 per cent.
“Unfortunately key issues do plague the industry, such as a fragmented dairy supply chain, milk supply constraints, ageing farmer population, and a reluctance to invest capital,” he said.
“Despite this, Australian capital holders and Australian dairy farmers must invest strongly in the industry if we are to take our share of increased global consumption. Our willingness to innovate and embrace new approaches is critical to this.”
Key report findings
These are the key findings of the report, according to ANZ:
- Current estimates anticipate milk production growth of 2.5%, with a total in range of 9.45 to 9.50 billion litres. However, the industry could increase milk production from 9.2 billion to 15 billion litres per year if key farming variables can be adjusted.
- The investment required to increase Australia’s productive output to 15 billion litres is estimated at $8.6 billion over the next 10 years.
- Australian dairy exports have grown from $969 million in 1980 to $3.2 billion in 2014, a growth rate of 3.6%. While Australia accounts for an estimated 2% of the world’s milk production, it accounts for 7% of the world’s dairy trade.
- Most of Australia’s dairy exports are destined for Asian countries. Greater China is now the most important export market, accounting for 19% of exports in volume and value.
- Australia has seen a 31% increase in export volume to The Philippines in the past 12 months to March 2015. Additionally, over the next 10 years, predicted growth in dairy imports of Indonesia and Vietnam are 3.3% and 3.2% respectively. Imports of Australian cheese are expected to almost double between 2013 to 2023 from 7,100 tonnes to 13,000 tonnes.
- The recent wave of acquisitions and large scale investments from multinationals has shown institutions are recognising Australia as a reliable and profitable destination for dairy investment.
Agriculture remains a key contributor to improving living standards
From climate to the world economy to local regulations, agriculture in general often faces more than its fair share of challenges. But Australians should never lose sight of the fact that agriculture remains a key contributor to improving the living standards of people at home and across the globe, according to the Minister for Agriculture and Water Resources, Barnaby Joyce.
“The FAO (Food and Agriculture Organization of the United nations) estimates that a 60 per cent increase in food production will be needed to feed the projected global population of over 9.7 billion by 2050,” Minister Joyce said.
“That’s the challenge—and in a natural resource-constrained environment the key is productive, profitable and sustainable agriculture through continuous innovation. Farmers in developing and developed countries alike face this challenge to feed ever greater numbers of us.”
According to Rabobank’s most recent quarterly agribusiness survey, released in late August, rural confidence has reached a four-year high, with almost half of the nation’s farmers expecting conditions to improve over the coming 12 months and across all commodities, 57 per cent of farmers reported an increase in productivity levels over the past five years.
Helped no doubt by a falling Australian dollar, commodity prices were a big cause for optimism among beef, sheep, grain and cotton producers this quarter. Overall, 74 per cent of farmers surveyed who expected conditions to improve identified rising commodity prices as a reason for their optimism – up from 63 per cent last survey.