AUSTRALIA’S position as a major supplier to the world’s dairy trade looks to remain firm despite an 8.5 per cent drop in export volumes on year ago levels for the first quarter of 2014.
While exports for 2013-2014 are down in volume, value has increased 20.2pc, according to Dairy Australia (DA) with milk powder, milk, cheddar cheese and butter increased at 2.3pc, 7.8pc, 1.3pc and 2.1pc respectively.
DA reported that March production was up 3.8pc on last year, but annual figures were down 1.4pc.
Australia’s position in the global dairy market was discussed at Legendairy Breakfast for service providers today (Thursday) by DA trade and industry strategy group manager, Charlie McElhone.
He said China’s demand for Australia’s dairy products was remarkable, moving from the 19th largest market in 1990 to recently overtaking Japan as Australia’s number one export market this year.
The major drivers of China’s exponential growth in demand has been due to well-reported domestic food safety concerns, economic growth and the sheer numbers of infants coming through with 16 million babies born last year.
Australia’s contribution to global dairy trade has slumped during the last decade, while major export rivals in New Zealand, Europe and the US have strengthened their share.
NZ and EU each hold about one third of global dairy trade and are looking to expand this share in response to the high global price for commodities, Mr McElhone said.
«NZ is travelling at 6pc up from a year ago and forecast to close the season up 10pc in total supply. It is an industry where it exports between 90-95pc of total production, and that additional production will all go onto the global market,» he said.
«EU similarly is expected to close (the season) with production up 2pc on year ago levels.
«Fortunately, the Russian market is a vital player in terms of absorbing EU supply and with Russia’s increasing its demand by 14pc during the past year, this has dampened the impact of additional supply out of the EU.»
The US is also travelling 1pc up year-on-year, Mr McElhone said, as it continued to shift from a domestic to international focus.
«Policy changes during the last decade in the US have made it more competitive and responsive to the market. This had seen the export share of US dairy production lift above 15pc of total production for the first time.»
US’s competitiveness, boosted by the Co-operatives Working Together and an export subsidy initiative targeting key markets like Japan and Korea, had dinted Australian exports.
While Australia’s demand was still robust, Mr McElhone said Global Dairy Trade (GDT) prices have dived by roughly 20pc since the start of February, indicating a «price correction» had already started to emerge.
DA do not calculate an opening price forecast, but Mr McElhone told attendees GDT had «come off» which was being factored into new season prices by processors.
He highlighted the pricing factors will have significant variations depending on the region within Australia and the commodity and market focus of each of the manufacturers.
«After a slow start to the 2013/14 production season, in the first half of this year we have seen production come back online in the export focus regions. This is a different story in the fresh milk regions where they have been under significant production pressures and have not seen anywhere near the milk price lifts that had been experienced by the export regions,» he said.
«We have not seen the same kind of price response in these regions because of lack of exposure to international markets. However we are starting to see some positive signs of new export market opportunities opening up in those regions as well that will play an important market diversification role for farmers and manufacturers in those regions»
The scale of the opportunity presented by a potential Free Trade Agreement with China was also discussed, using NZ’s significant competitive advantage and an estimated $30-50million annual industry profit success as an example.
NZ now contribute 86pc of milk powder supply to the Chinese market compared to Australia who contributes about 3pc.
«Looking at the numbers it is pretty amazing story to see the kind of way NZ have managed to capitalise on that Chinese market growth,» he said.
That rate of growth, profitability and the ability to tap into a more fair and equitable prices will be enhanced should a completed China FTA be favourable for the interest of the Australian dairy industry.
«It should be stressed that confidence in the industry varies depending on the region, but generally we are noting that confidence is on the up with the increases in farm gate milk prices, a lower AUD and favourable seasonal conditions buoying farmers’ attitudes,» Mr McElhone said.
Dairy Australia’s Situation and Outlook report will be released May 28.
Source: The Land