Australia’s milk production is tipped to potentially drop below 8 billion litres for the first time in three decades and farmers could be receiving less for their milk next year.
A new report from David Beca of Red Sky Agricultural in Kilmore, Victoria, forecasts a seven per cent drop in production in 2022-23, continuing an ongoing trend throughout this century.
Mr Beca also suggested Australian dairy farmers should be preparing for a significant reduction in milk price next year based on falling Global Dairy Trade prices.
Australian milk production this financial year was tracking well below the previous three years and that trend was likely to continue, he said.
“Unfortunately, it would appear that 2022-23 milk production could drop below eight billion litres for the first time since 1992-93, although this has been significantly impacted by flooding rains in many regions.”
Mr Beca has produced graphs highlighting Australian national milk production data from 1999-00 to 2021-22 plus a forecast for 2022-23, with a trend line extrapolating milk production for a further 10 years.
Based on the slope of the trend line, this would suggest production could fall to around 7.5 billion litres by 2033.
“Recently the flooding rains have aggravated the fall in milk production but over the past three or four years there have been very good milk prices but still falling milk volumes, which is concerning,” Mr Beca said.
“Usually if milk prices go up, we would at least expect to see some increase in production above the trend line.”
He said the long-term downward trend in production was unique to Australia.
“The loss of dairy farmers over the past 20 years in Australia is little different to most other country, but in Australia, those remaining are not expanding at the same rate because of a lack of profitability.”
Mr Beca recently had a paper published on South African dairy that demonstrates problems with production systems using more supplements and less pasture as a proportion of the diet, leading to higher production costs and lower profit margins.
“This has direct applicability to Australian dairy farm performance,” he said.
“Every other country has faced COVID, climate and labour factors so it is not logical to point to them as solely impacting on Australian farms; it comes back to a longer-term lack of profitability.”
Mr Beca said there was evidence that Australian dairy profitability had dropped over recent years while beef had improved.
“Some dairy farmers have gone to beef and some dairy farms have been sold and converted to beef.
“Historically, dairy farmers have had a higher profit based on return on capital compared to beef, sheep and cropping farmers, but this doesn’t appear to be consistently the case now.
“My proposed solution is for farms to change production systems back to significantly more pasture in diets and a lower percentage of supplements.
“Dairy farmers in south-east Australia have consistently been paid competitive milk prices to those received by other farmers in the Southern Hemisphere, though the cost of production has increased at a much faster rate than in these other countries.
“We certainly still have farmers who are highly competitive, especially in Tasmania and southern Victoria, but overall, we are less internationally competitive than we used to be.”
Mr Beca said the forecast ongoing drop in national milk production should not impact on Australian consumers, but it could further dent the industry’s position.
“There is no issue for Australian consumers from a drop in production because we only need around a third of our present milk supply to produce short shelf-life products.”
He said the decline in production would be tough for processors.
“Processors need to continuously improve their productivity to remain competitive and they need to have some growth in their business.
“They will have to reduce their investment in the industry if there is no milk supply growth.”
Mr Beca suggested Australian dairy farmers prepare for a reduction in milk price next year based on changes in the Global Dairy Trade price index.
“Although markets for dairy products can change direction rapidly, the reduction in the GDT price index and commodity prices over the last nine months would suggest that dairy farmers in export-exposed regions such as south-east Australia and New Zealand should be preparing for a significant reduction in farm gate milk price in 2023-24.
“If a significant drop in milk price does eventuate, then hopefully the impact will be offset by reductions in input prices and a lessening of extreme weather events.”