BeanScene Magazine

Supply chain revolution in Australia’s dairy industry: Rabobank

From the October 2017 issue.

The southern Australian dairy industry is in the midst of a supply chain revolution, with unprecedented change to the way milk is procured, priced and processed, according to a Rabobank report.

The report titled The Australian dairy supply chain – the great reset by agribusiness banking specialist Rabobank, says transformative changes have been instigated by a number of major events, which have caused significant tension along the dairy supply chain.

The report says three key events have been primarily responsible for driving this change: a drop in national milk production to a 20-year low, the internal challenges facing Australia’s largest dairy cooperative, and the reset in farmgate milk prices to better align with global markets.

“To have so many changes in such a short time frame is unprecedented and there is no doubt Australia’s dairy supply chain will emerge from all of this looking vastly different and almost unrecognisable,” says report author and Rabobank Senior Dairy analyst Michael Harvey.

While this sector transformation is leading to short-term uncertainty and potential business disruption for dairy farmers, Michael says it will present opportunities for some dairy farm businesses, particularly around choice to supply new markets and more commercially attractive supply contracts. However, the report cautions that farmers need to thoroughly assess these opportunities, and associated risks, before taking action.

The report says the fall in milk production, along with the anticipated slow rebuild, is set to see competition for milk among processors remain fierce, changing the way milk is procured in Australia’s southern dairy region.

“While milk supply is down across all dairy regions and is at its lowest level in two decades, northern Victoria has experienced the most significant drop, accounting for 50 per cent of this decline,” Michael says.

He adds that Rabobank is forecasting a small bounce in Australian milk supply in the 2017/18 season, in the vicinity of 2.5 per cent. In the medium-term, he expects milk supply to grow by a modest 1.8 per cent per annum.

“Based on this forecast, and assuming no major market or atypical climatic disruptions, national milk production is not expected to surpass the 10 billion litre mark again until 2020/21,” Michael says. “This will see processors continue to scramble for milk and adopt aggressive milk-supply programs as they try to recruit milk and minimise excess capacity.

“We are also seeing a break-down in loyalty between dairy farmers and processors, with farmers now more willing to move processors, which is having repercussions across the supply chain.”

As market conditions have started to improve in recent months, Michael says there has however, been an acceleration in processing investments, with at least 700 million litres of new primary processing capacity coming online across southern Australia this season.

Rabobank Australia & New Zealand Group is a part of the global Rabobank Group, the world’s leading specialist in food and agribusiness banking.

Leave Your Comments

  • Follow us on Instagram
  • BeanScene Newsletter

    Sign up now to BeanScene magazine's newsletter and keep up to date with everything coffee.

© Copyright 2017 Prime Creative Media. All rights reserved.

Find us on Google+