Rabobank tips change

Shepparton News - Country News - - DAIRY NEWS -

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 re­set 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 10 bil­lion 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 700 mil­lion 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 short­term 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.’’

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