Domestic market key for sustainability

Domestic market key for sustainability


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THE 2019 WA Dairy Farmers conference heard from key industry figures, advocacy groups, service providers and dairy farmers who reflected on a tough 12 months for the dairy industry and what challenges still lay ahead.

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Dairy Australia's industry analyst Sofia Omstedt provided an update on domestic milk trends and what's ahead for WA's dairy industry.

Dairy Australia's industry analyst Sofia Omstedt provided an update on domestic milk trends and what's ahead for WA's dairy industry.

THE 2019 WA Dairy Farmers conference heard from key industry figures, advocacy groups, service providers and dairy farmers who reflected on a tough 12 months for the dairy industry and what challenges still lay ahead.

In opening the conference, WAFarmers dairy section president Michael Partridge said the conference theme, Bringing value back, was something required for WA's dairy industry.

"We've lost a lot of money from the market place over the past 10 years, so it's about getting a fair value for our product so we can deliver a sustainable supply chain for everyone involved," Mr Partridge said.

"Our industry is mainly made up of servicing WA with fresh, white milk - at the end of the day it's our biggest product and it's a fantastic product, so why is it so undervalued?"

Dairy Australia's National Dairy Farmer Survey conducted in February showed 34 per cent of the 800 farmers surveyed felt positive about the future of the dairy industry.

With high costs of feed, irrigation and water causing low levels of confidence within WA's dairy industry, Dairy Australia's industry analyst Sofia Omstedt told the audience there had been an unprecedented number of farm exits that had contributed to a significant drop in milk production nationally.

"With water trading at close to record prices and farmers reducing their herd sizes due to drought, Australian milk production is well below 2017-2018 levels and has continued to decline year-on-year," Ms Omstedt said.

"While we are seeing a drop in the production of milk domestically, there has also been a drop in the percentage exported."

With the figure of milk exported from Australia varying significantly based on the State, she said the domestic market would be of key importance at both a State and national level.

"Sixty five per cent of all milk in Australia is sold on the domestic market, either as manufactured liquid milk or as various dairy products, while 80pc of milk produced in WA is sold on the domestic market," Ms Omstedt said.

"So in a year where there has been tough conditions on farms, we are becoming even more reliant on the domestic market.

"The domestic market really matters for industry value and it is key for a sustainable dairy industry."

Ms Omstedt said another key driver of the Australian dairy industry had been the removal of the dollar per litre milk policy in early 2019, after Aldi and Coles decided to follow the Woolworths example by raising the retail price of private label milk.

"The introduction of the $1/L milk had a significant impact on the market, reducing the average price of milk, despite increasing sales in its first year of introduction," Ms Omstedt said.

"The removal of $1/L milk has generated about a 3.1pc increase in value in this category nationally in the seven months to April 2019.

"We estimate in the 12 months to April next year, with the amount of private sales there will be about $70-$80 million nationally that could be gained from just a 10 cent increase, dependent on consumers not changing their purchasing decisions."

Although there had been pretty stagnant volume growth in terms of the major categories of dairy products in supermarkets across Australia, Ms Omstedt said dairy products were growing significantly in terms of value.

"Price growth is going to be of key importance and there are value opportunities out there that we can capture," he said.

"Litre wise, flavoured milk has grown pretty modestly nationally and in WA, but in terms of money it's grown quite significantly.

"The types of products growing specifically are deli style cheeses, probiotic yoghurt, any kind of yoghurt that fits the wellness health idea - so with added protein, no sugar etc.

"Consumers have demonstrated they are happy to pay a significant premium for these products.

"It's about trying to capture those trends so we can generate more money into the domestic supply chain."

Ms Omstedt said deriving value from sub-category products would be especially important in tough years like this one, when volume growth was stable.

Looking ahead, he said there was some good news for the dairy industry.

"The global markets are in a really balanced state with global milk production well matched to current market demand," Ms Omstedt said.

"Commodity prices have also been supported for major dairy categories by a 3.2pc increase in global demand in the 12 months to February.

"And despite a small decrease in overall sales in the Australian market, the end of $1/L milk had seen value increase in the domestic milk market."

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