The Dairy Industry: Future Opportunities

Ian J Lean Cows-R-Us & Scibus

University of Sydney

Long Term

1970: 35,000 farms 2.5 million cows

Powerfully represented loss of farm

Dairy Industry: A review of current situations

Milk use has changed over time

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Volatility in farm profits over time South Australia, Tasmania and Victoria in real terms (2016 dollars). From Anon (2017).

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Dairy Industry: A review of current situations

Less well described changes/ challenges

• Consolidation of milk production to larger producers 60% of milk from 20%

• There are few examples of significant re-investment in facilities (outside of milking sheds) –hence, farms are less efficient

• The cyclic profit/loss pattern impedes investment and expansion through natural increase

• Efficiency increases are diminishing as farmers fail to adopt new innovations

• This is masked by loss of less efficient farms

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New power

• The dictatorships of the minority• Emotion over rationale positions

• Agricultural produce (Food) represents a major policy problem

• The rise of Asian protein demand and affluence is real

• Food costs will rise and with that comes challenges of social equity and stability

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CHALLENGES TO FARMS (From 1997)

• Declining returns for product• Increased regulation• Increasing costs

• Market instability

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Comparative costs Australia, Argentina, US, UK, NZ in $US

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Australia NZ Argentina US-west US-wisc UK

Comparative costs Australia, Argentina, USA, UK, NZ -$US

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Australia NZ Argentina US-west US-wisc UK

Competitive advantage for industriescompeting for the global market will depend on

The application of efficient technologies for anindustry, that in turn reflects level of education andavailability of appropriate technologies• A competitive business environment – that is

costs of key inputs• Climate and benefits conferred through a

favourable physical environment (rainfall,sunlight etc).

• Value of internal markets.• Costs of labour inputs.

Competitive advantage for industries competing for the global market will depend on

The application of efficient technologies for an industry, that in turn reflects level of education and availability of appropriate technologies

· A competitive business environment – that is costs of key inputs

· Climate and benefits conferred through a favourable physical environment (rainfall, sunlight etc).

· Value of internal markets.

· Costs of labour inputs.

DO THESE DATA SUGGEST INCREASED GLOBAL RURAL

PROVERTY?

What about pasture?

Encroaching Rural Poverty

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The situation is highlighted by data (Lean 1987 – data from 1983)Producers in all States except Victoria were >90% equity;Vic was ~88% and

Summary position

• An industry in genuine crisis• Returns not consistent with effort or a sustainable

industry• Volatility in pricing – economic cycles that do not

match biological cycles• Farm development cycles at a point where there is

a need for major reinvestment• Little appetite for investment risk• A need to have confidence in different farming

systems – not the mantra of detraction

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What are the implications for stockfeed?

Market segmentation

• Smaller pasture-based dairies – will be viable for some time depending on succession success, season and debt (up to 200 cows)

• Larger pasture-based dairies – success depends on debt structure, season and price (up to 600 cows)

• Hybrid systems - success depends on debt structure, season, facility design, labour and price (up to 2000 cows)

• TMR - success depends on debt structure, facility design, season, labour and price

Small pasture farms

• Minimal infrastructure • Will use feed companies based on price,

convenience, service and support.

• Probable outcomes: Continue to slowly diminish in number. The squeeze between margins to service these, risk and return will continue.

Larger pasture-based farms

• Can be the most viable, but much depends on the particular circumstance and some are stocked above a logical level.

• Opportunities for growth depend a lot on previous investments in infrastructure. Many keep a very tight labour profile – main opportunities are for ‘complete complement’ diets and for ‘value add’ products to grain and starch – specialty feeds

Hybrid dairies

• While infrastructure is greater, it is often poorly designed. So much depends on the facility design and impacts on feed choices

• Commodity sales increase in importance, also value add feeds. Custom designing of diets increases in importance.

• These will increase in number and more will house or partly house. They will seek more advice on feeds and feeding.

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TMR dairies

• Increasingly professional• Clusters of new developments will represent

perhaps 60 or more traditional farms eg NSW Central West

• Opportunities – commodities are important, custom designed supplements to support base feeds.

Some key thoughts

• Further, there is a critical need for Australian milk producers to capture more of the value in internal markets.

• Fragmentation and segmentation are emerging strategies, with niche production of milks, butter, cheese; this may be a solid direction forward for smaller farms who can work with concepts of care, provenance and excellence to demarcate their product.

• For the industry, at large, a re-balance between the power of the supermarket and farmer is essential to the future of the industry if it is to survive beyond the small, cottage industry supplying the liquid milk structure. This requires a more sophisticated government approach

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In Summary

• Geographic change will be important• Increased traditional models (whole feed) for Tasmania

& reductions elsewhere• Increased opportunity for custom feeds and service in

all other sectors BUT

• Much depends on continued rise in Asian affluence• Need highly skilled professional – a crisis in University

teaching of Nutrition/ Dairy Science • System settings are crucial – retrieve the value of

whole milk & cheese, ensure supply chain integrity and true quality, adoption of new technologies and tighter liaison between farms – processors and retailers to provide value for all.

The Dairy Industry: �Future Opportunities��Long TermPowerfully represented loss of farm Dairy Industry: A review of current situationsMilk use has changed over timeVolatility in farm profits over time South Australia, Tasmania and Victoria in real terms (2016 dollars). From Anon (2017). Dairy Industry: A review of current situationsLess well described changes/ challengesSlide Number 9New powerCHALLENGES TO FARMS (From 1997)Comparative costs Australia, Argentina, US, UK, NZ in $USComparative costs Australia, Argentina, USA, UK, NZ -$USSlide Number 14DO THESE DATA SUGGEST INCREASED GLOBAL RURAL PROVERTY?Encroaching Rural PovertySummary positionSlide Number 18Slide Number 19Slide Number 20Slide Number 21Market segmentationSmall pasture farmsLarger pasture-based farmsHybrid dairiesTMR dairiesSome key thoughtsIn SummarySlide Number 29