Milk prices to spike as farmers battle floods, pandemic, cost of living

As the cost of living crisis worsens, one household item has become increasingly more expensive as producers try to manage the impact.

The price of a staple household item has gone up by 30c in less than a year, but experts predict it’ll spike again by the end of 2022.

By the end of 2021, home-branded milk in Australian supermarkets would have set you back $1.30.

But now it’s reached $1.60, prompting investigations into why the price has risen, and whether or not the trend will continue.

The price of milk is set to rise again by the end of 2022. Picture: Getty Images

As floods continue to wreak havoc across Victoria, NSW and parts of Tasmania, and the global economy conditions worsen, we can expect to see the price of milk rise in the foreseeable future.

The Australian Bureau of Agricultural and Resource Economics and Science (ABARES) projected a 28 per cent increase in the farmgate milk price going into 2023 raising it to 72.5 cents per litre.

The farmgate milk price is what dairy farmers are paid for the milk they produce

A big contributing factor to the price increase is a decrease in production, which has been on the decline since 2014.

With higher demand and lower supply, the price is driven up higher.

In weather affected communities, stock is flying off the shelves, adding more pressure to the dairy industry to produce more.

Reminiscent of panic buying at the beginning of the pandemic, coles in Shepparton is quickly clearing of many essential items, including milk. Picture: Gemma Scerri

Within the first six months of this year, milk production was seven per cent lower than the first half of 2021, according to ABARES.

The extreme weather events caused by La Nina and the Indian Ocean Dipole across Australia this year have limited production nationwide.

Dairy farmers have done it tough over the past few years, first battling to overcome challenges brought about by the pandemic, and then the devastation in Ukraine which has seen costs of supplies skyrocket.

Dairy farmers have faced hit after hit with the pandemic, war crisis and climate disasters. Picture: Zoe Phillips

Add in the flooding and natural disasters, and it’s not wonder the industry has decreased from around 7,500 dairy farmers down to 5,700.

The farmgate milk prices were regulated up until July 2000, after which farmers were free to negotiate their own terms with buyers.

The issue this now brings is Australian dairy producers will sell their milk to a handful of processors, who then go on to sell to only a few select retailers, with 60 per cent of total milk sales coming from major supermarkets.

This became an issue in 2011 as Coles tried to corner the market by offering milk for $1 per litre, which worked until Woolworths and Aldi joined the cause and this made milk prices stay incredible low for nearly a decade.

The major supermarkets stopped selling milk for $1 per L in 2019. Picture: Zoe Phillips

Milk processors needed the bigger supermarket contracts, so they had no choice but to squeeze the dairy farmers, and many of them gave up farming because of it.

The dairy production peaked in 2014 and has since been declining from then.

The major supermarkets ended the $1/L milk sales in 2019 after public outcry and political pressure forced them to acknowledge it was having detrimental effects.

A 28 per cent rise in the farmgate prices going into the new year will reportedly bring the value of milk production in Australia to $6.2 billion, finally giving some hope to dairy farmers who have been doing it tough for a very long time.