In Tasmania there was even a campaign called “filling the factories” three years ago where local farmers were encouraged to boost milk production. The aim was to match the anticipated demand from processors for up to 40 per cent, or about 350 million litres, more milk across the next 3-5 years.
New processing plants have been proposed in Victoria and then postponed. Camperdown Dairy International in southwest Victoria late last year put on hold its plan to build a plant at Camperdown. The plant was part of a $500 million venture flagged only 18 months earlier that included buying farms in a vertically integrated operation.
There are others ready to take off next season. The Union Dairy Company — a joint venture between Warrnambool’s The Midfield Group and international agribusiness giant Louis Dreyfus — will start its plant in Penola. Fonterra is spending $120 million to rebuild its Stanhope cheese plant after it was gutted by fire in 2014. The plant is almost finished. Murray Goulburn has upgraded its Cobram cheese plant and has built a new plant in Melbourne for its Coles liquid milk contract.
Pactum Dairy Group at Shepparton opened its UHT plant in 2014.
But behind all the upgrades and big dreams of milk factories wanting to make the most of the global dairy market, farmers wonder if the milk pool will sustain efficiencies in these factories.
In recent years Victorian milk production has been hit by drought and water availability, especially in northern Victoria. State production sunk to 5.8 billion litres in 2009-10, creeping up to 6.4 billion litres in 2014-15.
But these gains were lost — and more — this season after farmgate milk price cuts, the clawback of already paid income and wet conditions following seriously dry conditions. Australian milk production was down 8.1 per cent in March, with Victorian production down 9.4 per cent to 4.5 billion litres. Australia’s largest processor, Murray Goulburn, lost more than 20 per cent of its milk supply this season.
How can Murray Goulburn run efficiently with 20 per cent less milk running through its pipes? That was answered earlier this month when MG announced it will shut three “old and subscale” plants — Rochester and Kiewa in Victoria and Edith Creek in Tasmania.
Rabobank senior dairy analyst Michael Harvey says Murray Goulburn had the capacity to process 3.6 billion litres of milk two years ago. The closure of the three plants takes out 400 million litres of this capacity and, although this is back to 3.2 billion litres, it is “still well above the milk supply”.
Harvey says it is understandable MG wants to leave room to grow “but I wouldn’t say this has solved the issue of excess capacity (for the industry) as there’s another plant coming online and upgrades”.
“It is a zero sum game at the moment for processors, 10 per cent down in production is going to take a long time to recover, and while (milk supply) is recovering there is new capacity coming in the next 12 months,” he says.
Murray Goulburn will have only one factory in Tasmania after Edith Creek closes. Tasmanian Farmers and Graziers dairy president Andrew Lester says dairy is a huge economic driver for the state, with less processing capacity limiting growth.
“Two years ago the factories were almost full, in recent times there has been space there but if farmers want to ramp-up again what are they going to do?,” he asks.
“With less processing capacity, it limits the amount of growth in the near future and that is of great concern. If an MG farmer wants to grow their business, will they be forced to leave the processor? That is something MG is trying to stop.”
As the season winds up and all eyes shift to opening milk prices for next season from July 1, the industry will have a clearer picture about milk production. Dairy farmers respond to favourable prices with production. It could take a long time to regain lost milk, but a sustainable price for milk will be the first step in helping farmers take the first step to filling all that stainless steel.
Source: The Weekly Times
Link: http://www.weeklytimesnow.com.au/agribusiness/decisionag/market-report-dairy/news-story/b6b19bb995af0257067402f605963226