Australia’s shrinking milk pool keeps domestic prices high

Australia’s shrinking milk pool isn’t all bad news – experts say it’s keeping farmgate prices high. But for how long?

Australia’s shrinking milk pool is keeping farmgate figures buoyant but may be masking a mid-year price correction.

Dairy Australia has forecast a four to six per cent contraction in the national milk pool this financial year.

Experts predict the shrinkage will mean Australia’s milk output for the 12 months to June 30 will sit between 8 to 8.2 billion litres.

United Dairyfarmers of Victoria president Mark Billing said the shrinking milk pool had kept domestic prices relatively high as dairy figures drop abroad.

He noted that Bega boss Barry Irvin recently claimed Australia’s farmgate prices were roughly 30 per cent higher than prices paid on the international exchange.

“For the time being, the smaller milk pool has been good for farmers in that it’s helped to keep farmgate prices high. Obviously the dairy code of conduct has played its part too,” Mr Billing said.

“But the downside of a shrinking milk pool is the excess processor capacity. If milk isn’t pumping through those factories, then processors have to make some tough decisions about scaling back. Barry Irvin noted that recently, as have other processors.

“It’s a balancing act. You need a sustainable milk pool.”

The last time the national pool was around 8 billion litres was back in the 1994-95 season, in the wake of the early-1990s recession.

Australia’s milk pool reached a peak of more than 11 billion litres around the time of the Howard Government’s deregulation of the sector.

A steady decline set in the 2008-09 season, with the pool contracting at pace in the wake of the 2016 clawback by Murray Goulburn and Fonterra.

Dairy Australia industry analyst Eliza Redfern said floods in several states, input costs and labour shortages were all factors in the forecast contraction.

“Several of Australia’s dairy regions have experienced flooding in the past 12 months; that’s part of the reason behind this revised national milk pool figure,” she said.

“It’s also been hard for farms to attract and retain staff with labour shortages around the country.”