Why has NZ Dairy grown and Australian Dairy shrunk – could it be policy?

As I have investigated dairy in Australia, there is one graph that I did to visualise the system that has intrigued me.

Milk production vs policy settings!

It is this one. The one that compares the volume of milk produced in Australia and New Zealand (NZ)

This graph starts in 1962 which is a long time ago. I include it because it shows 2 things.

One is that at one time NZ produced less milk than Australia and secondly that there were changes when policies changed.

These include Britains entry to the common market in 1973 which allowed NZ access but denied Australia access 😳😳😳

NZ increased production and Australia reduced production.

In the mid 1980’s Australia revised its marketing supports under the Kerin Plan. This included set margins along the supply chain for drinking milk and a Levy for domestically consumed storable products like cheese and butter. These levies were related when the products were exported.

This meant that farmgate prices reflected works prices, but consumers paid more, but the extra money collected – went to supporting activities for the industry.

These included training for processors, marketing activities domestically and internationally, and Research and Development.

There was one thing that was wrong and its effect is still felt today. That was the isolation of each states drinking milk market. I have not found the origins of this, but it was a fact. In WA it at least goes back to the metropolitan milk act of 1933.

If anyone can add to this story, please add it to the comments section.

So each state has a Milk Market Authority The states of WA, NSW and Southern Queensland had a quota system which guaranteed drinking milk volumes.

This system did not support growth OR changing consumption patterns – that is the growth in cheese consumption from 3 kg per person in 1970 to 13.6 kg per person in 2018

Payments under a Quota system. Carrot and Stick

Each state had different programs and on ”deregulation” the bodies dispersed differently.

In the Pooling states / regions, being Tasmania, SA, Victoria and Far North Queensland the market milk premium was evenly divided between all registered milk producers – based on a proportion of the milk that went to the drinking milk sector.

This was as high as 35% in some months in some areas (FNQ) and as low as 7% in Victoria.

The benefits to the industry of the off farm investments by the Dairy Authorities were not always obvious to the dairy farmers.

The results of these financial additions to the industry resulted in significant product development, technological developments and brand developments such as Big M in Victoria.

Their adverts changed milk consumption for generations

And

These supports disappeared after 2000, with training, R&D, international and local generic promotion disappearing.

THE RESULT HAS BEEN A 25% DROP IN MILK PRODUCTION AND LOWER PRICES TO THE CONSUMER.

Perhaps this money has added to the community in other ways. I don’t know if that can be measured.However one thing that has snuck up on Australia is the fact that :

IF AUSTRALIA WANTED TO MAKE ALL THE DAIRY PRODUCTS IT CONSUMES,

IN AUSTRALIA

IT COULD NOT!!!

🇦🇺 AUSTRALIA IS NO LONGER SELF SUFFICIENT IN DAIRY.

In contrast, in New Zealand, they rolled their dairy industry and support industries into one super cooperative which is now called Fonterra.

This cooperative has grown to become the fifth largest dairy company in the world in financial terms and the second largest dairy company in the world and milk volume terms.

A company this large has marketing opportunities and marketing power and investment opportunities that cannot be matched by the small companies in Australia.

While there are discussions in New Zealand about the actual status and financial viability of Fonterra there’s no doubt that over the last 20 years it’s has developed a worldscale and prosperous industry.

So, what can Australia learn from New Zealand’s legislative structure around dairy considering that it and Denmark which has a similar structure are the main exporters of products like butter to Australia.

Policy is important.

Australia should review :-

It’s domestic needs and projections.

It’s internal policies – including state competition policies.

It’s imports of substitute products.

It’s Training and R&D structures and investments.

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