The Dairy Farm Monitor Project has been monitoring the Victorian dairy industry for two decades and newly released data, shows an industry that has undergone significant change.
The Victorian dairy industry of today is markedly different to that of 2006-07, but the state still accounts for most of Australia’s milk production at 63 per cent.
In 2006-07, Victoria had about 5346 dairy farms producing around 6.4 billion litres of milk and accounted for 64 per cent of Australia's total milk production.
Average herd sizes ranged between 140 and 200 cows per farm and average milk yield per cow was about 4500 to 5000 litres per year.
By 2025-26, farm numbers had declined to fewer than 2400 businesses along with production to around 5.3 billion litres.
The average Victorian herd size now exceeds 300 cows and average per cow milk production has increased to more than 6100 litres annually, reflecting improvements in genetics, nutrition, herd management and feeding systems.
Over the last 20 years, participating DFMP farms have become more intensive and productive, while facing increasing volatility in costs and returns.
Despite this, businesses have remained internationally competitive due to production of high levels of homegrown feed and an ability to adapt to changing market conditions.
Larger farm and herd sizes
The average Victorian DFMP business grew from about 345 milking cows in 2006-07 to almost 485 cows in 2025-26, representing an increase of around 40 per cent.
At the same time, average farm area expanded from about 271 hectares to over 350 hectares.
This increase highlights a capacity to adapt over time, with businesses investing in scale and efficiency to remain competitive.
As total costs have risen and profit margins have varied, many businesses have sought to capture economies of scale.
Larger herds allow fixed costs such as labour, machinery, dairy infrastructure and management to be spread across greater milk production.
Rising total costs and increasing reliance on purchased feed
While production efficiency has improved substantially, total production costs have also increased.
Feed is the largest and most variable cost category. The increase in total feed costs reflects higher grain and fodder costs, greater use of purchased supplements, and the need to manage seasonal variability more actively.
In addition to feed costs, labour, fertiliser, energy and machinery expenses have all risen over time.
The cumulative effect has been a steady increase in the total cost of production.
Importance of homegrown feed
Despite more purchased in feed, homegrown feed continues to underpin competitiveness.
A decline in grazed pasture has been substituted by greater amounts of homegrown hay and silage now contributing to the herd’s diet.
Pasture-based systems generally have lower feed costs than more intensive systems and can be highly efficient when climatic conditions are favourable.
The ability to grow and utilise large quantities of high-quality pasture and fodder crops continues to play an important role in farm profitability and resilience.
The challenge remains balancing the benefits of increased purchased feed use against the higher costs and financial risk associated with greater system intensification, given comparable profitability has also been observed with intensified systems.
Highly variable profits are a feature
Long-term profitability is one of considerable variability influenced by milk prices, seasonal conditions and input costs.
Statewide earnings before interest and tax have ranged from negative or near-zero values in difficult years to more than $3/kg MS during periods of exceptionally strong milk prices and favourable operating conditions.
Returns on total assets averaged about 4.4 per cent over the twenty-year period. Strong years have delivered returns above six per cent, while poor years have delivered returns close to zero or negative levels.
Each region reacts and recovers differently and as a result, successful dairy businesses have increasingly focused on risk management, maintaining good equity levels, building net wealth and maintaining flexibility to navigate periods of lower profitability.
Substantial variation persisted between individual farms within each year and between regions, demonstrating the range that exists around the average.
Periods of lower profitability and occasional losses highlight the cyclical nature of the dairy industry, while the stronger EBIT results recorded in recent years indicate improved operating conditions and profitability across much of the Victorian dairy sector.