New Zealand dairy producers look set to capitalise on a sharp drop in Australian export volumes that has coincided with dairy imports spiking.
These imports are expected to play a more significant role in Australia’s domestic supply chain in future with local milk production remaining constrained, Rabobank says in a new report that looks at the Australian dairy sector.
The overall trade profile for Australian dairy is in a period of transition “driven by a confluence of factors, including lower domestic milk production, an erosion of export competitiveness and more favourable domestic market returns impacting the product mix”, the report says.
The report’s author, RaboResearch senior dairy analyst Michael Harvey, said Australia is an important market for New Zealand dairy and that Kiwi exporters are well-positioned to capitalise on the expected lift in Australian imports.
“Behind China, Australia is one of New Zealand’s largest export destinations for dairy products, accounting for approximately 5% of total New Zealand dairy exports by value,” he said.
“New Zealand already holds a dominant share of Australian dairy imports and is the largest supplier of butter and cheese into the Australian market.
“It looks fairly clear that an ongoing shortage of milksolids will require Australian dairy companies to expand their dairy product and ingredient procurement capabilities over the medium term, creating growth opportunities in certain products and ingredients for global dairy exporters.
“And given New Zealand’s close proximity and strong existing trading relationship, Kiwi dairy exporters look well placed to take advantage.”
Dairy imports have played a crucial role in the Australian supply chain for a long time. But between 2013-2023, the annual dairy import volume in liquid milk equivalent doubled.
The pace of growth in dairy imports has shifted gears in recent years, with a broad-based lift in import volumes in 2022 and 2023.
Last year, Australia imported more than 1.4 billion litres of dairy product in liquid milk equivalents, excluding caseins.
The bank expects dairy imports to grow even further over the medium term, driven by shrinking Australian milk production, the comparative cost advantage of imported product and also a spike in demand for lower-budget dairy products among Australian consumers due to cost-of-living pressures.
Australia produced 8.129 billion litres of milk in 2022/23, marking the “third consecutive year of decline” in milk production.
“Since the most recent production high in 2020/21, more than 700 million litres of milk have been lost from the supply chain resulting in a chronic shortage of milk for manufacturing – that is the total milk available outside what is used for domestic and export drinking milk.”
In 2022/23, the country’s milk supply available for manufacturing fell to its lowest level since the 1990s.
Australia has been on a slow retreat from the global dairy export arena for some time, with exports falling off a cliff last year, he said.
“For the calendar year 2023, dairy export volumes were down with double digits across most products, with the largest declines in liquid milk (down 41% year on year) and butter (down 52%).”
Despite the reduction, Australia remains a net exporter of dairy products, ranking as the fifth-largest dairy exporter in the world, with 4% of global trade.
