Chapter 3
The Australian dairy industry
Overview
3.1
Based on a farmgate value of production of $3.4 billion in 2009–10, the
dairy industry ranks as Australia's third largest agricultural industry (behind
the beef and wheat industries). It is estimated that approximately 40 000
people are directly employed on farms and in manufacturing. Additional
employment would occur in other areas reliant on the dairy industry, such as
transport and distribution.[1]
3.2
Milk production is concentrated in the south-east region of Australia.
Victoria is the highest producer, accounting for over 60 per cent of milk
output.
Figure 3.1: Australian dairy farming regions
Source: ABARE, Australian dairy: financial performance of
Australian dairy farms, 2007–08 to 2009–10, June 2010, p. 3.
3.3
Australian milk production in 2009–10 yielded 9.02 billion litres, a
decrease of 365 million litres (3.9 per cent) from 2008–09 levels. Dairy
Australia, the national dairy research and industry services body, reasoned
that this decrease in production:
...reflected generally benign conditions and strong milk
prices in the domestically-focussed northern states; but also reflected the low
milk prices and the financial challenges faced by dairy farmers in the
export-focussed south-east dairying regions of the country. The irrigated
regions of southern New South Wales and northern Victoria also faced another
year of difficult conditions; with low water allocations and milk production
suffered accordingly.[2]
Table 3.1: Milk production by State (million litres)
| |
NSW |
VIC |
QLD |
SA |
WA |
TAS |
Australia |
|
1999–00 |
1,395 |
6,870 |
848 |
713 |
412 |
609 |
10,847 |
|
2000–01 |
1,326 |
6,784 |
760 |
699 |
388 |
590 |
10,546 |
|
2001–02 |
1,343 |
7,405 |
744 |
715 |
393 |
671 |
11,271 |
|
2002–03 |
1,302 |
6,584 |
720 |
733 |
404 |
585 |
10,328 |
|
2003–04 |
1,271 |
6,434 |
674 |
703 |
404 |
590 |
10,076 |
|
2004–05 |
1,218 |
6,613 |
619 |
679 |
398 |
600 |
10,127 |
|
2005–06* |
1,197 |
6,651 |
597 |
646 |
377 |
622 |
10,089 |
|
2006–07* |
1,105 |
6,297 |
534 |
655 |
350 |
642 |
9,583 |
|
2007–08* |
1,049 |
6,102 |
485 |
606 |
319 |
662 |
9,223 |
|
2008–09* |
1,065 |
6,135 |
512 |
628 |
340 |
708 |
9,388 |
|
2009–10* (p) |
1,074 |
5,790 |
531 |
605 |
350 |
673 |
9,023 |
* From July 2005, data collection based on farm location.
Source: Dairy Australia, 'Milk' http://www.dairyaustralia.com.au/Our-Dairy-Industry/Industry-Statistics/Milk.aspx
(accessed 22 February 2011), originally sourced from dairy manufacturers.
3.4
In 2009–10 just under 45 per cent of milk produced in Australia was
exported.[3]
Due to declining production, this is the lowest proportion since the mid‑1990s.[4]
3.5
Conversely, the proportion of milk production that has gone into
drinking milk has generally increased over the past ten years, from 17 per cent
in 2001–02.[5]
In 2009–10 the proportion of milk used nationwide for drinking milk, as opposed
to manufacturing, was projected to be 25 per cent.
Figure
3.2: Drinking and manufacturing milk production (by State)
Source: Dairy Australia, Australian Dairy Industry in
Focus 2010, p. 20, originally sourced from dairy manufacturers.
Dairy farmers
3.6
The number of dairy farms in Australia has decreased by two-thirds over
the last three decades from around 22 000 in 1980 to 7500 in mid-2010. Dairy
Australia considers that falling farm numbers reflect 'a long-term trend
observed in agriculture around the world, as reduced price support and changing
business practices have encouraged a shift to larger, more efficient operating
systems'. Dairy Australia notes that average herd size has increased from 85
cows in 1980 to an estimated 220 in 2010.[6]
3.7
Over the past few decades, this increase in productivity has led to milk
output generally increasing despite decreasing farm numbers. In the last
decade, milk production has been affected by weather events, such as the
drought in 2002–03 and long-term seasonal issues resulting in high production
costs and low water allocations.[7]
Dairy Australia has also downgraded its forecast for milk production for
2010–11 due to the recent floods and other factors.[8]
3.8
Trends in farm gate prices, profitability and the contracts between
farmers and processors are discussed in Chapter 4.
Milk processors
3.9
In 1986 when the first steps to deregulate the industry were taken, it
was widely recognised that rationalisation was required if the industry was to
become more efficient. During the late 1980s to 1999, much rationalisation had
occurred in the manufacturing sector through mergers. Over that time, the
volume of milk processed by the five major companies also increased from 50 per
cent to 75 per cent.
3.10
The manufacturing sector of the Australian dairy industry has continued
to rationalise. This has resulted in increased foreign ownership and a
reduction in the market share of farmer owned cooperatives. The most
significant recent event was the acquisition of Dairy Farmers by National Foods
during 2008–09. The Australian Competition and Consumer Commission (ACCC)
decided not to oppose the acquisition on the condition that certain assets were
divested.
Table 3.2: Major dairy processors
| |
Milk volume direct supply 2009–10 (billion litres) |
|
Murray Goulburn |
2.9 |
|
Fonterra |
1.8 |
|
National Foods |
1.7 |
|
Warrnambool Cheese &
Butter Factory |
0.8 |
|
Parmalat |
0.6 |
|
Tatura |
0.3 |
|
United Dairy Power (UDP) |
0.2 |
Source: Dairy Australia, Dairy 2010 Situation and Outlook, May 2010,
p. 38.
3.11
A proposal for further consolidation was considered in the first half of
2010. On 22 February 2010, the ACCC commenced a review of Murray Goulburn's
proposed acquisition of Warrnambool Cheese and Butter Factory Company. The ACCC
released a Statement of Issues in April which raised certain preliminary
competition concerns with the proposed acquisition. On 2 June 2010 Murray
Goulburn announced that it would not proceed with the acquisition and the ACCC
consequently ceased its review.
3.12
The drinking milk market is more concentrated than the overall dairy
products market, with National Foods and Parmalat being the only major
processors. Smaller processors with regional brands continue to operate in some
regions.[9]
Fonterra, which had about 3 per cent of the national market share for drinking
milk, has now virtually left the market by selling its Brownes milk business in
Western Australia to Archer Capital. The sale was completed in March 2011.[10]
3.13
Since the committee's previous inquiry reported in May 2010, a
significant event in the processing sector was the announcement on
29 October 2010 that Challenge Dairy, a south-west WA cooperative, had
gone into voluntary administration owing substantial amounts of money to
farmers. The ABC reported in late December 2010 that 47 dairy farmers in south
west WA were owed over $4 million for unpaid milk.[11]
Challenge's assets were sold to Harvey Fresh in February 2011, with the sale
and payments to creditors reported to be finalised in the next few months.
Retailers
3.14
The major supermarket chains sell milk in two formats: 'generic' milk
(also variously known as 'home brand', 'store brand' or 'private label') which
usually carries the name of the supermarket selling it and 'branded' milk which
usually carries the name of the processor.[12]
3.15
About 25 per cent of Australian milk production is used for drinking
milk. Dairy Australia estimates that 13 per cent of national milk production is
sold in supermarkets as drinking milk.[13]
Coles have stated that their total milk sales (private and branded milk) make
up less than four per cent of national milk production[14]—although
this would represent a more significant share of the drinking milk market. When
asked about their share of that market, Coles advised it was approximately
17 per cent.[15]
Figure 3.3: Market shares in Australian milk
production
Source: Coles, Submission
131, p. 12; originally sourced from Dairy Australia.
3.16
The volume of all milk sold by supermarkets under their own private
label has increased from around 25 per cent in 1999–00 to 50 per cent in
2009–10.[16]
Dairy Australia estimates that the market share of full cream private
label milk is currently about 71 per cent, up from about 59 per cent in
2000–01.[17]
In other dairy categories the penetration of supermarket private label brands
is lower, accounting for approximately 30
per cent of cheese sales, 28 per cent of dairy spreads, and 6 per cent of
yogurt.[18]
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