TL;DR:
- Australia’s dairy export volumes have decreased significantly, while imports have surged, indicating a shift in the country’s dairy trade profile.
- New Zealand stands to benefit from Australia’s changing dairy market dynamics, already being a major supplier of dairy imports to Australia.
- Despite a reduction in domestic milk production, Australia remains a net exporter of dairy products, holding a significant position in the global dairy trade.
Rabobank’s recent Australian Dairy Sector Outlook report highlights a significant transition in Australia’s dairy trade dynamics, with export volumes declining and imports increasing over the past few years. This shift is attributed to several factors, including reduced domestic milk production, diminished export competitiveness, and more attractive returns in the domestic market.
The 2022/23 season saw Australia’s milk production drop to its lowest since the 1990s, with only 8.129 billion litres produced, marking the third consecutive year of decline.
Michael Harvey, RaboResearch’s senior dairy analyst and author of the report, anticipates that dairy imports will play an increasingly crucial role in Australia’s domestic supply chain.
This change comes as local milk production faces constraints and the industry adapts to these shortages. Over 700 million litres of milk have been lost from the Australian supply chain since the 2020/21 production peak, leading to a significant shortfall in milk available for manufacturing.
Australia’s long-standing reputation as a quality dairy product exporter is undergoing a slow retreat from the global dairy export market. This retreat is expected to open up opportunities for dairy exporters worldwide, including New Zealand. In 2023, Australian dairy export volumes saw double-digit declines across most products, with liquid milk and butter experiencing the most significant drops.
New Zealand, as the largest supplier of butter and cheese to the Australian market, is well-positioned to benefit from these changes, contributing to approximately 5% of New Zealand’s total dairy exports by value.
Despite these challenges, Australia continues to be a net exporter of dairy products in liquid milk equivalents, ranking as the fifth-largest dairy exporter globally with a 4% share of the global trade.
However, the last decade has seen a doubling in the annual volume of dairy imports to Australia, surpassing 1.4 billion litres in 2023 (excluding caseins). This increase is driven not only by reduced domestic milk production but also by the cost advantage of imported products and rising demand for more affordable dairy products amid cost-of-living pressures.
The majority of Australia’s dairy imports consist of bulk ingredients, particularly butter and skim milk powder, as domestic production of these items declines.
With more imported products appearing on retail shelves, Australian dairy companies are expected to expand their procurement capabilities for dairy products and ingredients, presenting growth opportunities for global dairy exporters. New Zealand’s proximity and strong trade relationship with Australia make it an ideal partner to meet these emerging demands in the Australian dairy market.
