Evaluating the loss of profitability and declining milk production in the Australian dairy industry
Published in Australasian Agribusiness Perspectives
By David Beca
ABSTRACT
The question explored is whether, and, if so, why a significant proportion of dairy farm businesses in Australia have lost their competitiveness compared to other major dairy producers in the world. Since 2001 the Australian dairy industry has been contracting in size (reducing total milk production), unlike any of the other major exporting countries outside the European Union. Although many reasons have been proposed to explain this contraction in milk supply, it could reasonably be interpreted as confirmation that a significant proportion of Australian dairy farmers are not sufficiently profitable to maintain and grow their businesses. In this paper, comparisons between dairy farmers in six countries (Australia, New Zealand, United States, Argentina, Uruguay and South Africa) are utilised to determine whether factors “outside the farm gate” can explain the loss in profitability in the industry, and to determine what factors “inside the farm gate” are involved. Factors examined include milk price, weather/drought, industry deregulation, farm size and production system including pasture harvest and major cost centres. This paper proposes that the choice of production system by farmers is the primary determinant of the loss in profitability within the Australian industry and the contraction in milk supply. Furthermore, if in the future a lower cost of production system is adopted by Australian dairy farmers on their farms, these individual farms will improve their profitability and, if this is done by significant numbers of dairy farmers, the Australian dairy industry could return to a position of annual increases in milk supply of 2-3 per cent.
Addendum
This addendum to the paper includes additional information on all six countries that could not be included in the published paper, and explores more of the comparative performance in areas such as profit per hectare, milk production per hectare, stocking rate, pasture cost per tonne dry matter, supplement cost per litre, milk components (solids percentage), and total assets employed per cow. In addition, it considers how farmers might respond to the huge advantage New Zealand farmers have in pasture cost, and hence total feed cost per litre, compared to farmers in all other countries.
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