Dairy Markets: An Australian View21 January 2015
Price falls have meant a mixed year for dairy producers, according to this report from the National Bank of Australia (NAB), which discusses strong domestic production.
While the year began with considerable optimism on account of record international dairy prices and a good autumn break, lower international prices and challenging spring conditions have weighted on sentiment of late.
Domestic production is tracking slightly higher than last year so far but has peaked early in western Victoria and the Murray and Goulburn areas in response to dry to very dry spring conditions.
Gippsland is performing on par with previous seasons and Tasmania looks to be having an above average season. Longer term trends for Australian dairy have been characterised by industry consolidation driven by deregulation over the past two decades.
High levels of government intervention ended with the removal of price and production quantity regulation in 2000.
China Free Trade Agreement
There has been considerable interest in the impacts of ChinaAustralia FTA (ChAFTA) on Australia’s dairy industry in light of the impact of the New Zealand-China FTA on New Zealand’s dairy industry. ChAFTA includes the removal of all tariffs on Australian dairy products within four to 11 years, although some discretionary barriers remain.
It remains to be seen whether the China-Australia FTA will spur increased Australian dairy production and export. While New Zealand dairy benefited from an FTA with China, it was already enjoying strong export growth, in part allowed by favourable climatic conditions for dairy.
To fully capitalise on the ChAFTA, Australian dairy producers require further economies of scale in farming and investment in processing capacity, as well as strategies to mitigate the effects of future droughts.
World Picture: Sluggish Prices
International conditions remain sluggish, with prices on world markets falling since early 2014 in response to large Chinese inventories, plentiful global supply and, since August, the effects of the Russian dairy embargo.
We do not expect prices to recover in the short term should Chinese demand remain fragile.