Global Dairy Industry

1

The Australian Dairy IndustryNovember 2008
2
Presentation Plan

1. Overview of the Australian Dairy industry
2. Dairy Australias position role in the industry

3
Australian Dairy Industry Overview

• National herd size approx 1.7 M. dairy cows
• 8,000 dairy farms
• Average dairy herd size 215 cows
• Average milk yield per cow approx. 5,400 litres
  pa
• Average milk composition tests indicate milkfat
  4.04 protein 3.30

4
Australian Dairy Industry Overview

• Milk production in 2007/08 was 9.2 billion litres
  down 4 on LY
• Estimated 2008/09 is 9.3 billion litres up 1
  on LY
• Total value at farm gate A 4.6 billion
• 3rd most important rural industry in Aust
  behind beef wheat
• Total value of exports A 2.9 billion
• 5th most important rural export behind beef,
  wheat, wool wine
• Total value ex-factory A 11.5 billion

5
Australian Dairy Industry Regions
5
11
4
7
66
7
6
Seasonality of Milk Production in Australia

• Milk production is traditionally seasonal -
  reflecting the pasture-based nature of the
  industry.

7
Very dry conditions over the past 2 years
8
Milk Production 1979/80 2007/08

• Very strong growth through the 1990s
  increasing herd size yields per cow grain
  feeding.
• Significant impact of the 2002/03 drought with
  a following stabilisation phase then 2 more
  droughts.

9
Dairy farms and cows

• Farm numbers steadily decreased over many
  years.
• Cow numbers steadily increased through the 1990s
  until the 2002/03 drought.

10
Milk Production and Yield per cow

• Steadily improving milk yields per cow, combined
  with increasing cow numbers, has delivered strong
  growth in total milk production through the
  1990s.

11
Australian Dairy IndustryFarmgate factory paid
Prices

• No regulation of price paid to farmers totally
  market driven.
• Suppliers to co-operatives -gt average returns
  from all markets Aust exports.
• Suppliers to drinking milk companies -gt
  contracted prices for year-round supply.
• Australian farmgate prices are driven by hence
  strongly correlated to export returns.

12
Australian farmgate prices vs Export returns

• Australian farmgate prices are strongly
  correlated to export returns.
• No regulation of price paid to farmers totally
  market driven.

13
Australian dairy farm margins still under
pressure - despite strong milk prices

• Strongly increasing input costs
• Grain prices on increasing feeding of grains.
• Fuel prices.
• Fertiliser costs.
• Interest costs on increasing debt levels.
• But there has been financial recovery in
  many regions in 2007/08.
• Stronger milk prices enable dairy farmers to
  invest in their production systems to adapt to
  changing climate conditions.

14
Impact on dairy farm incomes profits
Source ABARE
Average farm debt increased by 50 since 02/03 to
over A 500,000
15
Climate change or climate variability ?

• 3 widespread Australian droughts in 6 years.
• Aust govt research CSIRO science ABARE
  impacts on agriculture.
• We know temperatures are rising 1 degree so
  far, 1 degree by 2030.
• Were reasonably sure its getting drier 3 5
  drier by 2030.
• Were less certain about runoff - the range of
  predictions is very wide.
• It seems reasonable that variability /or extreme
  events might increase but the evidence is
  difficult to gather.
• Working to develop regional predictions most are
  currently quite broad.

16
Future for the industry on-farm

• Increased climate variability is likely
• No going back to normal.
• Farming systems will need to change
• More adaptable.
• Flexible and opportunistic.
• Adaptation is already happening
• Current Australian industry features a range of
  farming systems.

17
Typical Australian production system ?

• Continuum of systems operating in Australia.
• Many farms feature elements of all these systems
  - in the future more will move between these
  extremes.

18
Future for the industry on-farm

• Adaptation strategies
• Greater risk management of bought-in feed.
• Security and trade-ability of water access.
• Greater water use efficiency.
• Development of pasture species.
• Improved feed conversion e.g. DAs Grains2Milk
  program - information and advice to farmers
  examining flexible feeding systems.

19
Australian Dairy IndustryDairy Manufacturing
Environment 2007/08

• Approx 50 of total milk output is processed by
  farmer-owned co-ops
• Largest co-operative 35 of milk Murray
  Goulburn.
• Public companies WCBF multi-nationals
  Fonterra Kirin - National Foods Parmalat.
• Private companies such as Bega Cheese, Tatura
  Milk, Ballantyne, Burra, Regal many small niche
  specialty cheese manufacturers.
• Milk processing sector undergoing continuing
  rationalisation.
• Manufacturers responsible for own returns - no
  government price support.

20
Utilization of Australian Milk 2007/08
21
Utilization of Australian Milk 2007/08
22
Australian Dairy Industry - a major exporter
Exports
Australia

• Australia exports approx. 50 of milk production
  - for a total value in 2007/08 of A2.9 billion.

23
Australias Focus is on Higher Value products

• With limited supply, Australian manufacturers
  need to ensure maximum return to the dairy
  farmer.
• Australian product has high transformation,
  labour, packaging, transport costs.
• Australias focus is on high value-added product.
• The days of cheap commodity exports from
  Australia are well and truly over
• We are only interested in long-term business
  relationships with companies seeking high value,
  high quality products in order to
• Obtain the best possible returns for our dairy
  farmers - i.e. stable customers at world prices.

24
Australian Dairy IndustryValue of Exports by
Zone - A 2.9 B. in 2007/08

• Australian exports are concentrated in Asia /
  East Asia 69 of total.

25
Australian Dairy IndustryTOP 10 Australian
Export destinations in 2007/08
26
The Australian domestic market

• General food price inflation
• Good market value growth
• Demand affected by higher prices
• Consumer sentiment under pressure
• Increasing diversity of food service and
  convenience

water
Export
Milk production
Processing/ manufacturing
Feed production
Marketing
Retail
supplements
Distn
Import
Food service
27
Australian market settings

• Economic environment
• Slowing economic growth
• Inflationary pressures sustained
• Disposable incomes hurting

• Dairy market settings
• Food sales growing faster LY at 7-8
• Food CPI is up around 5-6
• Intensifying supermarket rivalry
• Same store sales CPI
• Expansion by Aldi independents
• Lifestyle shift to foodservice convenience
• Fuel / interest rates will affect discretionary
  meals
• Higher milk values being pushed into market

28
Supermarket sales growth
29
Rising prices biting volumes?
30
Consumers trading down

• Milk
• Plenty of choice in milk category
• From branded to private label
• From modified milks to regular whole milks
• Pack size up from 2-lt to 3-lt
• ALL options reduce / litre cost
• Cheese
• Changing pack size same spend / smaller pack
  size

31
Long-term per capita consumption trends in
Australia
32
Dairy Australias position role in the industry
33
Dairy Australia

• Dairy Australia was formed on 1 July 2003 a
  merger of ADC the DRDC.
• Is a single dairy industry owned funded service
  organisation.
• Corporate objective
• To grow an internationally competitive,
  innovative sustainable dairy industry.

34
Australian Dairy Industry Levies - 2007/08

• Industry level activities are funded by
  farmer-paid levies charged on all milk produced
  in Australia.
• Levies charged on milkfat and protein content of
  milk
• Total Levy 0.3 cents / litre or 3,000 per
  1 M. lts production
• Less than 1 of farmgate price
• Plus matching R D grants A15 M. from the
  government.

35
Dairy Australia budget by Objective 2009 - 2013
36
Dairy Australia Key Functions

• Research, development extension for the benefit
  of the dairy industry gt from on-farm to
  manufacturing to improve competitiveness.
• National market development gt to increase
  domestic demand for dairy products by
  leveraging dairy products health and nutrition
  benefits .
• International trade development gt to improve the
  international trading environment to enhance
  export market growth.
• Information services -gt to provide statistical
  library services to the industry.
• Industry relations communications -gt with
  farmers the wider community.
• Technical issues management -gt addressing
  environmental community issues - e.g. food
  standards animal welfare environmental
  sustainability biosecurity etc.

37
Australian Dairy Industry Drought Response

• A co-ordinated response Dairy Australia, ADF
  state farmer bodies, ADPF, Government
  manufacturers.
• Information planning tools inputs data
  (e.g. feed reports), updates, briefings.
• Financial support services assistance
  packages, milk price support, incentives, working
  closely with farmers, loans feed sourcing.
• Local assistance Regional Co-Ordinators.
• Water management Increased efficiencies - 10
  billion Water Plan (Jan 2007)
• Little happened in 2007 was an election year
  in Aust expect more co-operation between state
  Federal governments this year.

38
Thank You For a comprehensive overview of the
Australian dairy industry see the Dairy 2008
Situation Outlook report available from
www.dairyaustralia.com.au