Page 33 - Food & Drink Business Jan-Feb 2020

Cheese downgrading its profit guidance for FY2020, as well as consolidation within the sector, including the current process of China Mengniu’s acquisition of Lion’s Dairy and Drinks business, which awaits regulatory approval.
“For dairy companies, the biggest challenge in 2020 will again be coping with less milk in the system and the supply chain,” Harvey says.
“Competition for milk supply amongst the dairy companies will remain heated. Less milk volume and high milk prices being paid to suppliers is leading dairy companies’ margins being squeezed.”
For dairy farmers, Harvey says that despite the costs of feed being lower at the start of 2020 compared to the same time last year, mitigating feed costs will remain the biggest
challenge ahead of them, as “by historical standards, feed bills are still very high”.
“The key to the recovery is better seasonal conditions and some relief on feed costs, which would help restore profit margins. With this, there would be a boost in investment confidence. But in reality, it would be a multi-season recovery as many dairy farm owners would also need to pay down some debt before making larger business investments.”
Weinert suggests that a short-term levy to increase farmgate price during drought and other emergencies could “help farmers purchase feed, which is at a much higher price than previously”.
Establishing a dairy margin coverage scheme, similar to what the US introduced in 2018, couldalsobebeneficial. ✷
✷ INDUSTRY SNAPSHOT
STATE OF PLAY: AUSSIE DAIRY INDUSTRY
DAIRY BUSINESS
Niche Agribusiness consultant and dairy industry analyst Andrew Weinert offers some key insights into the Australian dairy industry. • In 2002, Australia produced 11.3
billion litres of milk for a
population of 19.6 million.
• In 2019, Australia produced 8.8
billion litres of milk for a population of around 25.5 million, which is growing at about 400,000 per year.
• Dairy Australia reports the yearly consumption of drinking milk is 100 litres per person.
• In 2020, Australians will drink 2.55 billion litres of milk, growing at 40 million per year.
• If all the cheese, butter, ice- cream, yoghurt and other
products consumed in Australia were made in Australia, another 6 billion litres of milk would be needed.
• In 2019, Australia imported 30,000 tonnes of butter and 105,000 tonnes of cheese. It would take more than 1.6 billion litres of milk to make this of cheese and butter.
• Imported butter and cheese is cheaper than some high value Australian made exports.
• In 2020 Australia’s milk production is expected to drop to around 8 billion litres and after the fires, this could be more. Last year Australian production dropped by 530 million litres, an average of 1.45 million litres per day.
GROWTH
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