March 23, 2018

OPINION: Australian dairy can be the cream of global crop

It’s been quite a ride for Australian dairy over the past few years, characterised by supply and demand imbalances, currency fluctuations, and a reset of the domestic milk price that had reverberations throughout the industry. 

We’ve seen new dairy players emerge whilst others fade, and ongoing investment in a sector that many had written off as unprofitable in the wake of this market volatility.

Australian dairy can prosper, despite global volatility. It’s why Fonterra is investing significantly to increase our manufacturing capacity and grow Australia’s milk pool. But it isn’t growth for growth’s sake. There’s a world hungry for dairy and Australia can help feed it.

Around 406 billion litres of dairy are consumed globally every year, and by 2020, that figure is expected to reach 465 billion litres – showing that demand is growing much faster than global supply. Countries such as Australia that produce more dairy than they need for domestic markets are well-placed to capture this demand. Fonterra is the world’s largest trader of dairy, with a presence in over 100 markets. We have the scale and the dairy know-how to tap into that demand, building on our customer networks to deliver the high-quality dairy the world wants, and we’re shaping our business to be agile and efficient so that we can compete and thrive.

However, we can’t do it alone.

Having a competitive cost of production along the entire supply chain is crucial to ensuring we can compete on a global scale and are able to meet world dairy demands. From the farm, to the factory, to getting our product to market, there are a number of critical factors that influence our global competitiveness. With the right policy settings in place, Australian dairy will be well positioned to grow.

Right now, one of the most critical factors affecting farmers is having access to water. Water security is vital to the future of farming in the Murray Darling Basin – not just for our grains and horticultural industries, but for our dairy industry too.

The politicking around water has dented farmer confidence in Victoria’s food bowl, with many of our farmers concerned that over a decade of hard work implementing the Basin Plan could be washed away, leaving them with no certainty around their future.

Fonterra last year opened its state of the art cheese plant in Stanhope, Northern Victoria, sending cheddar and mozzarella to key markets across Asia, and this year we’re doubling its size to keep up with global demand for cheese. In order to meet that demand, we need our farmers to grow their milk, and in turn, our farmers need to have confidence that they can access the water they need to run their businesses. It’s time for governments at all levels to put politics aside and work constructively in the interests of our farmers and their communities to reach a bipartisan solution.

A similar bipartisan approach is required on energy policy, to curb price rises and help both farmers and processors manage their cost of production. Energy price rises can have a significant impact on the profitability of our farmers’ businesses, with energy price fluctuations often larger than many other input costs such as hay and grain. At the factory, energy costs are a major factor in the cost of producing dairy foods, and it continues right along the supply chain as that product goes to market. For example, a one dollar increase in the commodity cost of gas equates to around a $1.8 million increase in the cost of production for our business each year. Having greater insulation from sharp price rises enables businesses to reinvest for growth.

The third factor in being globally competitive is achieving meaningful trade liberalisation that levels the playing field between Australian dairy and other major dairy producing nations.

The Australian Government has achieved much in securing free trade agreements with key markets across Asia in recent years, particularly Japan and China, two of Australia’s biggest customers for cheese. We need to maintain the momentum gained from recent agreements with Peru and the Comprehensive and Progressive Agreement for the Trans Pacific Partnership and secure open trade partnerships with Indonesia, India, and the Middle East, the new developing dairy markets.

Finally, in order to respond to dairy demand, we need an agile, passionate, and highly-skilled workforce from the farm to the factory to advance our industry and lead us forward. Having the right people in place is crucial to growth.

Dairy needs to be an industry of choice for those entering the workforce, and one of the major drivers of choice is opportunity. If people see the opportunities for prosperity that working in dairy provides, and we can demonstrate pathways that lead to meaningful and fulfilling careers, we will have the workforce we need to compete globally.

The dairy industry has taken many steps to get the elements we can control right, and position ourselves for growth. We now need governments of all levels to do their part to ensure the elements within their control support that growth. With the right settings in place, we can be confident that Australian dairy is well placed to capture global demand and prosper, with sustainable returns right along the dairy supply chain.

René is a speaker at the Global Food Forum in Sydney on 27 March 2018.