How can the Australian dairy industry take advantage of future FTA roll-outs? Is foreign investment something we want or need in the industry? Are there other ways for the dairy farmer to reduce long-term feeding costs? These are some of the main questions addressed in this forum discussion hosted by Head of Agribusiness for ANZ, Mark Bennett, together with the Principal of Sinclair Wilson Accountants, Basil Brock, Industry Analyst, Amy Bellhouse of Dairy Australia and Director/Owner of Reid Stockfeeds, Ian Reid.
Mark Bennett – Head of Agribusiness, ANZ
In the last year China has overcome Japan in Australia as our Dairy sector’s largest export destination and with 26-28 million rising into their middle class each year (the equivalent of Australia’s population) the gap between China and Australia’s second largest export nation will only widen. Only by combining Japan, Singapore and Malaysia do we find a larger market than China.
China consumes 45-billion litres of dairy each year but only produces 36-billion litres. This 9-billion litre shortfall is the entire dairy production of Australia. With China’s growing population of middle-class this deficit will only grow without meeting the need by increasing the import market share.
To meet these demands Australia’s Dairy community has to work harder for greater efficiencies and investment whether that comes from local or foreign investors.
Ian Reid – Director/Owner, Reid Stockfeeds
Genetic potential of Dairy herds is currently estimated to be only 60% of their potential. More incentive is needed for Dairy farmers to help extract this full potential. Current farm-gate pricing arrangements don’t support the necessary long-term planning and investment back into business that farmers need to make it possible. Ian remains skeptical about whether farmers will get the money they require to achieve this.
Every cent drop in currency translates to roughly $4 more on the local price for wheat as demand for export markets rapidly drives prices up. For instance the drop in currency over the last 12-months has seen wheat prices rise by $50.
Dairy farmers need to consider a longer-term view of feed prices and consider how you can hedge them when favourable circumstances present themselves. Poultry and pig farmers frequently take advantage of this approach when they see they have profit and grain prices are at historically reasonable levels. For example there is a $50 positive difference between now and September 2014 which some Dairy farmers took advantage of and are now reaping the benefits from. However it’s acknowledged that short milk cycling prices does make it difficult to hedge with confidence.
Amy Bellhouse – Industry Analyst, Dairy Australia
True benefits of the free trade agreement with China won’t be felt by the Dairy industry before the medium to long-term. China’s import tariff’s will be phased out incrementally; skim milk and powder formula 11-years, cheese & butter over 4-9years, and infant formula 4years. The benefits of these will be reflected in price back through the supply chain.
Basil Brock – Principal, Sinclair Wilson Accountants
Revenue of the Dairy Industry is a concern in the medium term. There needs to be more certainty in the dairy farming community for investment decisions. Today’s pricing and contracts system by processors provides little future confidence for planning by farmers.
With globalisation, lack of internal investment and the permission to freely trade with other countries we may need to concede to some foreign investment to progress the state of our industry.