Milk

GVP $688 million est. Up 2.6% year-on-year.
Competition for supply continued to support farmgate prices.
Supply growth opportunities were hampered by labour shortages, declining cow numbers, and increasing input costs.

Strong dairy commodity markets and rising farmgate prices helped to mitigate the impact of rising input costs on farm business margins however, labour shortages, high cattle and land prices, and farm exists, continued to affect the available milk pool.

Production

Domestically, good farmgate prices and broadly favourable seasonal conditions did not translate into milk supply growth. Whilst the Annual National Dairy Farmer Survey indicated NSW dairy farmers had a high level of business positivity and significantly more widespread profitability moving into the 2021-22 season, this was largely counter intuitive to the decline in milk production. Total NSW production was 1,075 million litres for the 2021-22 season, 0.3% lower than 2020-21 and trailing well behind the 5-year average by 1.5%.²⁵⁰ Whilst the North Coast and Inland/Central dairying regions both experienced marginal year-on-year increases in production, the Southern, and largest dairying region in NSW by volume, faced a 2% year-on-year fall in supply.²⁵⁰ Total Victorian milk production declined by 3.3% year-on-year, with the Eastern Victorian milk production region experiencing a decline of 3.8%.²⁵⁰ Combined with another fall in production from Queensland, the Australian eastern seaboard milk pool experienced a total seasonal decrease of 3% to 6,836 million litres.²⁵⁰

The relatively static milk supply was a response to numerous factors that have emerged over the past 2-3 years, including high beef prices, increased competition for land, and labour shortages (due in-part to COVID-19 restrictions in addition to total decreases in labour supply). These combined factors led to a continuation of some farms partially or fully transitioning out of dairying resulting in a further reduction to the NSW dairy herd. Weatherwise, the year was marked by periods of significant rainfall and relatively mild summer temperatures which were beneficial for most NSW pasture production systems. It did, however, create challenges in some regions, negatively impacting pasture quality which in-turn reduced per cow milk yields. Major flooding also occurred across large areas of the NSW coastal production regions and resulted in pasture, infrastructure, and some livestock losses, putting further pressure on milk supply.

Price

Dairy processors and milk buyers collectively announced their opening farmgate milk prices for 2021-22 at the start of June 2021, as required by the Dairy Industry Code of Conduct. Prices for the Southern Milk Pool averaged $6.92/kg milk solids, which was 5.4% higher on the previous year’s opening prices.^f Further price step-ups were announced throughout June 2021, which resulted in opening prices for 2021-22 increasing to an average $7.03/kg milk solids. These step-ups reflected intense competition for milk by processors due to the sluggish growth in the southern milk pool. For northern NSW milk, more commonly used for drinking milk domestically, prices were substantially above southern milk prices, which is more export-focused. The average NSW farmgate milk price for 2021-22 was $8.78 /kg milk solids, up 2.9% year-on-year.¹⁷³

Global dairy prices strengthened throughout the year, increasing due to a global shortfall in supply. Global dairy prices, as measured by the FAO Dairy Price Index, averaged 132.3 points in 2021-22,¹⁵ and increased 29% over the course of the year, primarily reflecting increased import demand in response to the very tight global supply and inventory levels. The 12-month average prices indicators for cheese, butter, and whole and skim milk powder all increased, gaining 10%, 36%, 22% and 31% respectively.¹⁵ Whole Milk Powder reached a 7-year high of $4,757 USD/MT in March 2022 and cheddar reached an all-time high of $6,472 USD/MT in April 2022, the highest price since launched on Global Dairy Trade in 2011.¹⁶ In response, the trend of Australian dairy manufacturers prioritizing cheese and milk powder production continued throughout 2021-22. Average prices eased during Q4 but remained well above the 5-year average¹⁶ with a weaker Australian dollar boosting price competitiveness in export markets and insulating local returns.²⁰

Global Dairy Commodity Price Indicators ¹⁶

Butter
Cheddar
Skim Milk Powder
Whole Milk Powder

Download data (.XLSX)

Trade

Despite a decline in domestic milk supply, total NSW dairy exports experienced year-on-year increases in both volume and value, with the total value (both raw and semi-processed) strengthening, up 29% year-on-year.³⁵ China was once again NSW’s top trading partner, with the value of dairy exports to China increasing by 51% year-on-year.³⁵ The primary driver of this growth was milk powders which increased by an impressive 142% in volume and by 167% in value to reach $165 million.³⁵ The total value of Australian dairy exports (both raw and semi-processed) strengthened, up 20% year-on-year.³⁵ This growth was driven by increases in the volume and substantial increases in the value of powdered milk exports to China. Throughout Q1 to Q3 2021-22, exports to China showed growth in fluid milk and whey. This shifted during Q4 2021-22, with fluid milk and whey products still growing year-on-year, but milk powder imports suddenly experiencing a large uplift.³⁵

Interestingly, this trend contrasted with the trend for global powdered milk imports into China, which declined in 2021-22 in response to increased Chinese domestic milk production, higher beginning stocks, and weakening demand.²⁷ One of the reasons for the continued and steadily rising import of powdered milk products from Australia may have been that it remained relatively competitively priced and faced comparatively lower tariffs than that from other sources. A larger proportion may also have been Skim Milk Powder (SMP) as opposed to Whole Milk Powder (WMP). For many processors in China, imported SMP is cost competitive and of a consistent quality, which makes the production of domestic SMP less attractive and, consequently, China’s SMP consumption is primarily based on imported SMP.²⁷ New Zealand, Australia and the United States are the key suppliers of SMP to China.

Concentrated Milk And Cream exports to China (mainly powdered)³⁵

Volume (million kg)

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Macroeconomic Conditions

Australia’s major dairy export competitors were also contending with slow, or in some cases negative, growth in milk production. A global supply slowdown occurred due to flat production across all of the key global exporters including New Zealand, the EU, UK and the United States. This was driven by COVID-19-induced supply chain challenges and demand shifts, and various geopolitical actions including the Russia/Ukraine war, which contributed to record-high input costs and supply chain disruptions. The same market drivers also placed pressure on input supplies and prices for NSW dairy farmers however, other input costs were tempered due to the favourable weather conditions and large feed grain supplies. The seasonal conditions across most NSW dairy regions resulted in reduced irrigation requirements and thus lower water and power costs, and, on average, feed availability was excellent, with good pasture growth and a large volume of available hay and feed grains. Feed grain prices were slightly higher than usual but not excessive, and this helped keep feed costs reasonably low however, surging fertilizer and herbicide prices placed some pressure on cash flows.

Domestic demand for dairy continued to grow, particularly through foodservice channels as trade activity gradually began to return to levels similar to pre-COVID levels, although the Omicron outbreak and the prospect of another wave of infection ensured some uncertainty remained. Retail data indicated that growth in supermarket dairy sales volumes remained slow and largely stagnant, lagging behind foodservice spending.¹⁸³ While supermarket sales volumes remained low, values began to rise in early 2022. Dairy retail prices increased, with Consumer Price Index (CPI) annual data for 2021-22 indicating that the CPI for Dairy rose 5% over the year. However, this trailed the inflationary movements for vegetables, bread, beef, and poultry.¹⁹⁷ On average, dairy goods remained attractively priced.

Change in CPI Sydney¹⁹⁷

Bread
Beef and Veal
Poultry
Dairy
Vegetables
Eggs

Download data (.XLSX)

Outlook

The ongoing COVID outbreak and its management in key markets such as China, and global geopolitical-related events will continue to create unique demand situations, however the constrained domestic supply will largely buffer NSW farmers from the full effect of these potential demand shifts. Rising and volatile input prices and ongoing labour concerns will continue to pressure margins, both at the farm and processor level²² and one of the key challenges will be managing costs in an inflationary environment. Dairy processors and milk buyers announced opening domestic farmgate prices for the 2022-23 year in June 2022 and several step-ups were announced over the weeks following, reflecting the ongoing intense competition for supply and robust global markets. Initial 2022-23 prices for the Southern Milk pool averaged $9.32/kg milk solids.¹⁷¹ Continued upward pressure on prices is expected as processors continue to try to incentivise production however, ongoing growth constraints and the heightened margin risk are expected to offset high farmgate prices and favourable seasonal conditions, likely resulting in another comparatively flat milk pool.¹⁷

Stronger Primary Industries Strategy

Pantry Blitz

In early 2022 the NSW Department of Primary Industries (DPI) ran a four week project that engaged households and businesses from across the state in an effort to monitor pests in home pantries.

In a state first the ‘Pantry Blitz’ project was introduced in an effort to find out what pests may be lurking in people’s homes while also helping to protect the state’s $23.1 billion primary industries sector.

Strategic Outcome

Biosecure Industries and Environment

In a post Covid world greater volumes of freight and mail are increasing the risk of new pest incursions. The home pantry can be the perfect breeding ground for a wide variety of beetles, weevils and moths that can live happily, and often undetected, in stored food items such as dried fruit, cereal and flour.

There are various ways in which infestations can be introduced - through the supply chain via avenues such as processing plants or storage facilities. Unwanted insect pests can also stowaway as hitchhikers on a wide range of cargo including plastic beads, nuts and bolts, timber flooring, foodstuffs and white goods and make their way into homes. Or they can be introduced by people inadvertently purchasing infested products or by insects gaining access through open doors, windows or cracks in the walls.

Participants in the project were issued with a free a non-toxic glue trap to install in their pantry and were asked to take a photo and send a report of findings at the end of each week of the program.

As well as being an important surveillance initiative that provided DPI with vital information to assist in the NSW DPI’s efforts to keep NSW free of devastating insect pests, Pantry Blitz was also a positive and successful exercise in stakeholder and community engagement and directly impacted on people’s capacity to play their part in protecting our state’s primary industries.

While Australia is fortunate to be relatively isolated from the rest of the world allowing a certain amount of freedom from damaging pests and diseases found in other countries, the increase in trade and travel post Covid also sees an increased risk in the likelihood of exotic pests arriving.

DPI experts are now analysing each report, identifying any pests found and will provide information on the results straight to the device of participants to assist them in managing their household pests. Once collated a final report will be prepared and the findings will be published online.