An unprecedented change to the way milk is procured, priced and processed, is leading to a dairy industry ‘supply chain revolution’ according to agribusiness banking specialist Rabobank.
Recent major events have triggered these transformative changes, which are in turn causing significant tension right along the dairy supply chain, according to its report, The Australian dairy supply chain – the great reset.
The three key events primarily responsible for driving this change, according to the Rabobank, are a drop in national milk production to a 20-year low, the internal challenges facing Australia’s largest dairy cooperative Murray Goulburn, and the reset in farmgate milk prices to better align with global markets.
“To have so many changes in such a short time frame is unprecedented and there is no doubt Australia’s dairy supply chain will emerge from all of this looking vastly different and almost unrecognisable,” says report author and Rabobank senior dairy analyst Michael Harvey.
The report says the fall in milk production, along with the anticipated slow rebuild, is set to see competition for milk amongst processors remain fierce – changing the way milk is procured in Australia’s southern dairy region.
“While milk supply is down across all dairy regions and is at its lowest level in two decades, northern Victoria has experienced the most significant drop, accounting for 50 per cent of this decline,” Harvey says.
He says Rabobank is forecasting a small bounce in Australian milk supply in the 2017/18 season, in the vicinity of 2.5 per cent. And in the medium-term, milk supply is expected to grow by a modest 1.8 per cent per annum.
“Based on this forecast, and assuming no major market or atypical climatic disruptions, national milk production is not expected to surpass the 10 billion litre mark again until 2020/21.” he says.
