Dairy industry faces tough year

22 Jul, 2015 02:00 AM
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Slowing growth in China and the Middle East have sent global milk prices to a six-year low

AUSTRALIAN dairy farmers will barely break even this year amid a collapse in global milk prices, the industry's peak body says.

Most dairy processors have declared an opening price of $5.60 a kilogram of milksolids for the 2015-16 season and are hopeful it will rise to about $6 a kilogram by the end of the year.

However, a persistent oversupply of milk and slowing growth in China and the Middle East have sent global milk prices to a six-year low, threatening to put the brake on price increases and signalling a tough 12 months ahead for farmers.

Australian Dairy Farmers president Noel Campbell said most farmers operated on a $5 to $5.50 a kilogram price to cover their costs of production.

"As a dairy farmer, we have got to be careful in the next 12 months as to how we operate our business," Mr Campbell said.

"There isn't much of a buffer there. What happens in the next 12 months in respect to international prices will dictate if there is any possibility of step ups for the year."

However, Mr Campbell was confident Australian farmers would be spared the price cuts experienced in New Zealand.

New Zealand is more reliant on the global whole milk powder price.

"We don't get the dizzy heights of the global market like they do, but, by the same token, we don't go to the depths of the market when it goes down either because we have a lot bigger domestic market which buffers it to a big degree," he said.

Whole milk powder prices plunged 13.1 per cent in the GlobalDairyTrade auction last week to $US1848 a tonne, the lowest since July 2009.

The diving price has forced Fonterra, the world's biggest dairy exporter, to cut its forecast payout to New Zealand farmers to $NZ4.40 a kilogram.

However, in Australia, the New Zealand-based co-operative has matched its local competitors with a $5.60 a kilogram opening price.

Although Mr Campbell warned of a tough 12 months ahead, he said the longer-term outlook for dairy was positive, citing the free trade agreement which the Abbott government signed with China this year.

"The Chinese market is a growing market. Traditionally, Japan's been our best market but it's (a) stagnant market and mature market," he said.

"So the entry of a free trade agreement with China, I think, would give farmers confidence that the longer-term viability of the dairy industry is strong."

AFR
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READER COMMENTS

Rob Moore
22/07/2015 5:13:50 AM

Well until they adopt a model like my PRIMARY PRODUCTION PRICING Bill (Which I presented to ADF)- it will always be the same poverty levels. Treated like mushrooms-year after year..........in many ways farmers deserve all that they (don't) get by copping this. Ditto for cane,livestock, hort -anything need fair & open Competition to give a fair farmgate return!I have given 2 yrs and four govt submissions to help myself&peers- no one interested. Can accept that & glad I had a go - unlike 99.999% of landowners.Govt has stranglehold on any reform-must keep status quo-at all costs
Mike Logan
22/07/2015 7:54:08 AM

Australia's dairy exports have dropped to 40% of production in recent years - down from 65% in 2000. We really aren't in the export business like NZ. Consequently, since 2010 Aus farmgate price has not moved with export prices. The fundamentals of dairy in Asia & Australia remain strong. The market is continuing to grow with consumption improvements & product innovation. The issue is stocks in China have been too high - an over bought market. The international price has fallen accordingly.

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