In hindsight, Dairy Australia’s Dairy Situation and Outlook – October 2015 report’s cautious tone in relation in the season’s opening milk price (of $5.60 per kg of milk solids) has proven all too justified; continued weakness in international milk prices “defied” volume growth in global milk production, and a so-called “supply-side adjustment” was needed (at some time) in order to restore balance to market fundamentals. For Australian dairy farmers, the report warned that milk processors were flagging the possibility of a “step down” in FY16 milk prices, yet national milk production would increase by 2% to around 10 billion litres.
Fast-forward seven months to May 2016 and the “supply-side adjustment” has arrived. Dairy Australia is now actively encouraging dairy farmers to take stock of their pasture, herd and financial situation given current uncertainty around seasonal conditions and milk pricing.
In this edition of the Agribusiness Bulletin, we take a closer look at the potential impact on Tasmania’s dairy industry and an overview of some of the financial assistance packages offered by milk processors.
Tasmanian dairies produced over nine percent of the nation’s milk. 2015-16 has been a challenging year for many dairy farmers in the state with exceptional dry and warmer conditions. Many farmers have experienced water restrictions and lack of feed1. With recent announcements in relation to milk prices, outlined below, it is likely that 2016-17 will be tougher again.
Approximately 18,901 square kilometres of land in Tasmania is classified as agricultural land, around 28%, most of this is in the north and east of the state. There are approximately 440 dairy farms in Tasmania directly employing 1,500 in the farm sector and 1,200 in the processing sector2. The value of agricultural income for the state in 2014-15 was $1.4 billion, of which nearly $450 million was generated from the dairy sector.
The cash income for Tasmanian dairy farms in 2014-2015 decreased from an average of $238,130 in 2013-2014 to $221,800. Although farmers saw an increase of 11% in average volume milk production, this increase was not sufficient to offset lower prices per litre received for milk and an increase in farm costs, particularly expenditure for feed.
ABARES projects that 2015-2016 farm cash income of the Tasmanian dairy industry will see a further decline to an average of $132,000 per farm. This decrease is around 50% on incomes just two years earlier and falling back below the 10 year average (to 2015-2016) income level. This reflects the effects of lower forecast milk prices and even further increases in feed costs as a result of drier seasonal conditions already experienced this calendar year3.