2016 Outlook for the Western Australian Dairy Industry

Image courtesy Nic McPhee

The Western Australian dairy industry has become increasingly focused on the market for daily pasteurised fresh and flavoured milks and short shelf life fermented products. These are areas where margins can be maintained and external suppliers find it hard to compete.

The markets for cheese and UHT milk products are competitive internationally but still provide an outlet for Western Australian products.

The industry has been stable and relatively static for a number of years. With drinking milk margins possibly limited by supermarket discounting and an export price that has been reducing, it is expected that low prices will remain till at least 2016.

Over the last two years there have been significant changes in the corporate structure of all of the major local processing companies. One operation – Harvey Fresh – has been purchased by Parmalat, a subsiduary of Lactilis, the French multinational and another – Brownes – has declared itself for sale. Icecream and butter manufacture has left the state and the future of cheesemaking is unclear.

A report commissioned by Wesfarmers some years ago, gave a favourable outlook for the dairy industry in Western Australia. The report indicated that markets in South East Asia for products made from fresh, clean and safe milk are in high demand, the report identifies fresh and long life milk, fresh cheese and specialty powder products as potential investment opportunities. Action on this report is still to be seen.

Dairyfarming

Milk production in 2014/15 was around 363 million litres, an increase of 11% on the previous year and preliminary indications are that this will increase again in 2016. This is still below the levels of 412 million litres in 2000, prior to deregulation of the industry.

Continuing high prices for heifers for the export market, provides an attractive alternative to herd expansion or, in some cases, to herd replacement and the maintenance of production levels. While the heifer market is becoming more competitive, our proximity to Indonesia in particular, should ensure this remains a viable option with Western Australia exporting over 10% of the total dairy heifers exported from Australia.

Processing

A shortage of milk this year during the seasonal trough resulted in one processor bringing milk from South Australia to cover commitments for fresh dairy products. Later in the year this flow was reversed. This movement of milk is a result of internal business issues and reflects where companies can extract the best value from their purchased and contracted raw resources.

The smaller scale local processors in Western Australia continue to compete successfully with the major companies with innovative products and the level of investment in these businesses indicates that they will play an increasingly important role in the industry in coming years.

Drinking Milk

The drinking – liquid – milk export market has emerged as an outlet of significance to Western Australia taking almost 50 million litres, or about 13% of local production, in 2014 this has increased over the last two years. Western Australia now accounts for over 50% of Australia’s exports of liquid milk exports due to the freight advantage to Singapore. Any easing of import restrictions placed on dairy products in a number of South East Asian countries could see this volume expand.