Dairy industry facing challenges – Food and Beverage Sector

The Australian dairy industry is facing challenges as the 2024/25 season comes to a close. Reports from Maxum Foods and Rabobank indicate a decrease in production in key regions, coupled with uncertainty in the global market due to geopolitical factors. According to the most recent Consumer Price Index, dairy is the only food category experiencing price deflation, reflecting reduced consumer demand as household incomes are under pressure.

One of the main factors affecting Australian dairy production is severe drought in southern regions, leading to a decline in milk output. The situation is expected to worsen despite resilient output in April, with increased culling and reduced herd numbers. Additionally, floods in NSW are impacting local output, resulting in more milk being pulled from Victoria to service northern fresh markets. The Maxum Foods report has revised its production outlook to be down 2 percent in the 2025/26 season, with lower spring peak levels due to the reduction in the herd.

RaboResearch’s report indicates a slight decline in national milk output for the 2024/25 season, with production totaling 7.129 billion liters from July 2024 to April 2025, a 0.1 percent decrease year-on-year. The forecast for the 2025/26 season anticipates a marginal decrease of -0.4 percent, with potential downside risks if seasonal conditions remain dry. However, some dairy companies in the southern export sector have raised farmgate milk prices due to stronger ingredient and export returns, reaching benchmark average prices of approximately $8.40/kgMS.

On the global stage, market fundamentals have improved overall, but the dairy market remains influenced by tight EU milk and butterfat supplies due to low soil moisture and animal disease. The protectionist trade agenda of the US administration has raised concerns about potential tariff barriers impacting whey protein and cheese markets, which officially began in April. Uncertainty surrounding trade disruptions, US fiscal policies, and geopolitical agendas contributes to caution in the dairy complex and wider global economy.

RaboResearch’s senior dairy analyst, Michael Harvey, highlights the impact of recent tariff measures by the US administration on international markets, potentially dampening dairy demand locally and in Australia’s export markets. While Australia’s dairy exports to the US are limited, a weaker Australian dollar is expected to provide some price support for dairy exporters. The Australian dollar acts as a shock absorber amid global uncertainty, trading lower against the US dollar compared to the previous year. Despite challenges in global markets, the trade of whey and lactose from the US to China presents opportunities for Australian dairy exporters, although export volumes may be constrained.

In conclusion, the Australian dairy industry is navigating through a challenging period with reduced production, uncertain global markets, and geopolitical tensions impacting trade dynamics. Producers are facing cost pressures, production troubles, and reduced demand, necessitating careful management of risks in the upcoming 2025/26 season. It remains to be seen how Australian dairy companies will adapt to evolving market conditions and geopolitical uncertainties to maintain their competitiveness in the global dairy industry.