Australian dairy producers will be able to weather the global price downturn if the findings of banking specialist Rabobank are any indication.
Its recent report, Oceania Dairy – Let’s Debt Serious, suggests the 2016/17 season will be financially challenging, with milk prices for many export-orientated producers likely to remain below breakeven.
However, much of the industry will be in a position to source working capital and manage the cycle, with Australian farmers aware of the importance of generating cash buffers and appropriate gearing levels to help manage volatility.
“Over recent years, many dairy producers have taken the opportunity of improved farm profitability to pay down debt rather than expand their business,” said senior dairy analyst Michael Harvey.
With equity likely to be eroded during this downturn as farmers access working capital to manage challenging conditions, Harvey said producers would need to use the next upward price cycle to strengthen their business structures.
“This may see farmers adopt a business strategy focused around reducing debt and rebuilding equity, rather than chasing the profit margin in the upswing,” he said.
Harvey said the adoption of a flexible production system was also a good long-term strategy for farm resilience.
The Rabobank report indicated global market dynamics had caught up with Australia, despite dairy processors continuing to invest in value-add strategies.
The Australian and NSW Coalition governments have shown support for those struggling in the downturn, with applications now open for Dairy Recovery Concessional Loans in New South Wales.
These loans currently have an interest rate of 2.71 per cent, falling to 2.66 per cent on 1 August, and will be available for the next two years to help farmers adjust to the current challenging price environment.
Dairy farmers can also apply for income assistance through the Farm Household Allowance.
