Australia’s dairy industry is undergoing a ‘‘supply chain revolution’’ according to a Rabobank report, which forecasts unprecedented changes in the way milk is procured, priced and processed.
Released last week, the report signals plummeting milk production, Murray-Goulburn’s internal challenges and the re-set in farm gate milk prices as the reason behind a revolution in the way the dairy industry runs.
Senior dairy analyst Michael Harvey said the combination of these significant changes in such a short period of time had resulted in the dairy supply chain’s transformation into an ‘‘unrecognisable’’ system.
‘‘While milk supply is down across all dairy regions and is at its lowest level in two decades, northern Victoria has experienced the most significant drop, accounting for 50 per cent of this decline,’’ he said.
Although a 2.5 per cent jump in Australian milk supply is forecast for the 2017-18 season, in the medium-term milk supply is expected to grow by a modest 1.8 per cent each year.
‘‘Based on this forecast, and assuming no major market or atypical climatic disruptions, national milk production is not expected to surpass the 10billion litre mark again until 2020-21,’’ Mr Harvey said.
The report found that by the end of the 2017-18 season, Murray Goulburn will have lost 45 per cent of its milk supply since its record intake in 2014-15, a ‘‘significant contraction’’ according to Mr Harvey.
With most investment focused on increasing production capacity for export-orientated cheese production, Mr Harvey said it was a trend likely to continue with processors attempting to allocate milk supply to higher and more stable return streams, a particularly good strategy given Australia’s finite volume of milk.
‘‘As market conditions have started to improve in recent months, there has been an acceleration in processing investments, with at least 700million litres of new primary processing capacity coming online across southern Australia this season,’’ he said.
‘‘This is a particularly good strategy given Australia’s finite volume of milk and consumers’ evolving attitudes to dairy fat.’’
Mr Harvey said this transformation was resulting in short-term uncertainty and potential business disruption for dairy farmers who were grappling with supply contracts and decisions, although it would present some farmers with opportunities.
The report did caution farmers, saying they need to thoroughly assess these opportunities and the associated risks before taking action.
‘‘This will see processors continue to scramble for milk and adopt aggressive milk-supply programs as they try to recruit milk and minimise excess capacity,’’ Mr Harvey said.
‘‘We are also seeing a breakdown in loyalty between dairy farmers and processors, with farmers now more willing to move processors, which is having repercussions across the supply chain.’’