As industry settles into a new paradigm following 2017, there is plenty of opportunity to think laterally about the cooperative structure, Dairy Australia’s Trade and Strategy Group Manager Charles McElhone told the DFMC conference last month.
“There is no hiding from the fact that 2017 has been a year of unprecedented change for our industry.
“At the heart of that is the fall of our largest processor cooperative, and the breakdown of trust and loyalty between farmer and processor that has brought with it,” Mr McElhone said.
He said that changing dynamic has meant 11% of dairy farmers have changed their processor in the past 12 months, 9% are considering it, and 8% want to but are unable to.
And it has been accompanied by falling milk supply, down 7% in 2016-2017 on the back of a fall of 2% the previous year.
“What that means is milk supply is at a 20-year low, it’s down over 600 million litres.”
Mr McElhone said that is forcing processors to examine the way that they compete for milk, and how they diversify their product mix.
“And this, as well as the changing legal and regulatory environment for the sector, means farmers – and various supply structures like the DFMC model – have a real opportunity to demonstrate their value.”
Mr McElhone said the outlook for dairy product remains positive, despite the decline in farmer confidence.
“It’s an interesting fact that despite all the turmoil, exports are down only about 60m litres in terms of liquid milk equivalent, and the proportion of Australia’s milk exported during the same period has actually increased from 34% to 37%.
“It underscores the point that Australian dairy is a major trader of dairy products and while we have been hearing more about the imports in recent times, we remain a significant dairy exporter.”
In terms of consumption, Mr McElhone said consumers are drifting, albeit slowly, back to private label after shifting dramatically to branded milk after the price clawbacks of 2016. They are also moving to full cream as dietary trends focus less on fat and more on naturalness of food.
Processors are supporting this with a strong diversification in product and market mix. Milk attributes are being examined and the nutritional benefits of milk promoted.
He said international markets have been volatile in recent years but now seem to be more in balance.
“Europe is growing in response to higher prices, and New Zealand is poised – depending on the weather – to bounce back. Demand remains heavily China-focused, with stockpiles in Europe and the United States.”