Cow of a year ahead for dairies

Philip Hopkins

The Australian dairy industry is facing one of its most difficult seasons for some time, the outlook scarred by poor international prices, the strengthening Australian dollar and the drought, the industry's marketing body has warned.

The Australian Dairy Corp annual review said the industry had performed strongly after deregulation, but the short-term outlook in 2002-03 remained unfavourable.

The review said the world market would continue to be hit by overhangs of stockpiled surpluses in the European Union and United States.  In 2002, EU export subsidies and the US farm bill helped drive international prices down, with Australian export market returns finishing the season at their lowest point in a decade.

"While supply/demand balance is expected to be more favourable, demand growth is unlikely to be sufficiently strong to generate a substantial improvement in world product prices," the review said.

Export prospects would also be affected by global economic growth, with exchange rate factors a key factor.

"The strengthening of the Australian dollar in mid-2002 has added downward pressure on local farm gate returns," the ADC said.  "If this trend continues it will have a negative impact on overall industry profits in the year ahead."

While domestic milk production was expected to rise, the dry season was creating increased uncertainty, it said.

However, there was some good news for dairy farmers this year, the ADC said.  Despite the downturn, Australian exports rose 6 per cent in value to $3.25 billion, an 87 per cent increase on 1997-98.

Japan and South-East Asia remained the major markets, but with improved access, the US, EU and China were growing in importance.

The volume of dairy products imported into Australia declined by nearly 14 per cent in 2001-02.

Reduced fat and flavoured milks continued to record increased sales at the expense of regular whole milk and UHT lines.

Supermarkets increased their percentage of milk sales, with house-brand milk sales rising by almost 20 per cent at the expense of branded product lines.

Extract Sydney Morning Herald 16/12/02