Price rises to hit demand for dairy

PRICE increases for dairy products could impact on consumer demand across the country.

A new report from Rabobank says Australian consumers are seeing significant price increases across dairy products based on the national Consumer Price Index data.

Milk prices have risen at the fastest rate since records began, according to the report titled Walking the Tightrope into 2023.

While Australian consumers have shown resilience in the face of cost-of-living pressures, the report says signs of dairy demand weakness are emerging as a willingness and ability to spend on discretionary items softens.

Report co-author, senior analyst at Rabobank Michael Harvey, said households were trading down to private label offerings and volume declines in grocery and food service sales were becoming more evident.

“It looks set to be a tough year ahead for Australian consumers,” he said.

“For Australia’s dairy producers however farmgate margins remain positive and are supported by the record milk prices.”

The average farmgate milk prices across Australia’s southern export regions range between $9.50 and $10/kg of milk solids.

“The high milk prices have mostly offset major cost headwinds – fertiliser, fuel and feed – for dairy farmers.

While labour availability remains a major challenge for dairy farming businesses,” Mr Harvey said.

He said Rabobank was not expecting further major lifts in milk prices as the season draws to a close. Production across the country has been revised down with decreases in all states ans regions.

Year to date production has dropped by 6.6 per cent.

“A wet summer is in play across much of eastern Australia – driven by the La Nina in the tropical Pacific Ocean and a negative Indian Ocean Dipole,” Mr Harvey said.

“And many dairy production regions on Australia’s east coast have been dealing with excessive rainfall and flooding.

“There has been significant feed and fodder losses as a result of the rain and flooding.

“Some supply chain/logistics issues have been reported as a result of the wet weather – including some dumping of milk – but not to the point of having a material impact on milk processing,” Mr Harvey said.

Australia’s dairy exports continue to grow despite falling milk supply. Mr Harvey said this was supported by improvements in global freight markets and normalising consumer behaviour across export markets in Asia.

“Australia’s total dairy export volumes were 4 per cent higher in the first two months of 2022-2023 season.

However, it was a mixed bag – liquid milk exports are running strong, but it has been a slow start for cheese and whey.”

Global markets remain weak but there is clear divergence between regions and products.

The report says cheese and butter prices in the United States and Europe have performed the best, while milk powder and butter prices have declined.