Australia's high farmgate milk prices are so far out of whack with overseas markets we have become an attractive export market target for our dairy product rivals overseas.
Local farmgate prices - averaging well above $9 a kilogram (milk solids) - are up to 30 per cent higher than New Zealand dairy farmers receive and about double the price paid to US and and European producers.
While the price recovery of the past three years has been welcomed by farmers, local dairy processors have struggled to cope with the significantly higher milk costs and other inflationary pressures which have made their own dairy products expensive to produce and less competitive.
"For us, this is being particularly felt in the bulk cream and protein market," said managing director with dairy and plant-based beverages processor, Noumi, Michael Perich.
He told the company's annual general meeting the farmgate price dislocation was not just continuing to undermine Australia's ability as an exporter, it was also luring an influx of cheaper products here.
Last financial year dairy product imports totalled almost 344,000 tonnes, largely from NZ, the US and Europe.
It was the largest import volume ever in a single season, according to Dairy Australia.
"When coupled with a shrinking Australian milk pool, it is creating a challenging environment for a sector which we believe would benefit from processing capacity rationalisation," Mr Perich said.
Australian farm milk production is forecast to stay steady at a depressed 8.1 billion litres in 2023-24, having fallen from about 9.8b a decade ago.
Dairy Australia has tipped the national herd would likely continue shrinking, down another one per cent this financial year.
Its recent research confirmed the price difference between Australian and NZ dairy products reached an all-time high in 2022-23, coinciding with widespread inflation ramping up cost pressures for both buyers and producers.
Volumes arriving from NZ jumped almost 30pc and 16pc from the US.
Imports accounted for more than 40pc of the Australian butter market by volume last season, most of which came from NZ.
The 2022-23 decline in national milk supply, combined with depressed international prices, also meant Australia became a net importer of milk fats for only the second time because there was a significant price difference between local and international product.
"The external dairy environment remains very difficult," Mr Perich told the recent meeting.
His comments followed company chair, Genevieve Gregor, emphasising the disparity between Australian milk prices and the global market was the "biggest external issue facing the dairy industry at large".
"Put simply, Australian exported dairy products are uncompetitive against comparable global products," she said.
However despite the challenging industry conditions, including a 26pc surge in last season's farmgate milk costs, Noumi's dairy and nutritional products division recovered considerable ground in 2022-23 - almost breaking even.
The previous year the dairy business posted a $20.6 million loss in earnings before interest, tax, depreciation and amortisation.
Improved performance
The improvement was achieved by Noumi abandoning low margin product sales, including export markets; growing its Australia's Own and Milklab categories, and lifting operational performance at its Shepparton milk plant in northern Victoria and at Ingleburn in Sydney.
A focus on efficiencies and revenue management had seen production wastage cut from 13pc in 2021 to 5pc last year, in particular at Shepparton.
Mr Perich said, pleasingly demand for lactoferrin remained healthy and the company was supporting exciting research examining the health benefits of the milk protein which is known to boost the human immune system.
Noumi had also released a new "Lowers Cholesterol" milk product as part of its Australia's Own dairy range.
"We need the dairy and nutritionals business to become financially self-sustaining to free up capital to invest in future growth across the company," he said.
"To achieve this we must build on the improvements we have made in the business - and we need a correction in global price dislocation."
Ms Gregor said Noumi, previously known as Freedom Foods before its debt-heavy business structure was broken up and partially sold off, had more work to do as it reset, transformed and got back to long-term profitability and growth.
However, last financial year delivered improved sales, margins and earnings, with net revenue up 5.6pc to $551m and adjusted EBITDA up four-fold to $30.4m.
Noumi's business includes the fast growing coffee culture favourite, Milklab, which offers both dairy and plant-based products in its range.
Ms Gregor said the plant-based business "shined" in the past year, with sales growth of 10.3pc, generated by strong demand from baristas and home consumers.
The momentum had continued into this financial year.
The company was focused on doing more in the plant-based category within Australia and overseas, specifically in South East Asia.
Andrew Marshall
Andrew Marshall is the group agribusiness writer for ACM's state agricultural weeklies and websites. He is a former editor at The Land and has worked in various Rural Press group roles in Canberra, North Richmond (NSW) and Toowoomba (Qld).
Andrew Marshall is the group agribusiness writer for ACM's state agricultural weeklies and websites. He is a former editor at The Land and has worked in various Rural Press group roles in Canberra, North Richmond (NSW) and Toowoomba (Qld).
