Farmgate milk prices have been in the spotlight since major processors suddenly and retrospectively cut prices in 2016.
The man who has headed up some of the largest dairy companies in the southern hemisphere said the trend of decreasing farm profitability in Australia had been emerging well before the dairy crisis.
“We have to look deeper and realize that our profitability has eroded,” David Beca said.
Mr Beca has been the chief executive of both Australia and Uruguay’s largest dairy farming enterprises, the Van Diemen’s Land Company (VDL), and NZ Farming Systems Uruguay.
The rosy picture he had of the Australian industry was “shattered” when he crunched the numbers on the past 15 years of farm performance.
“There is a trend of decreasing profitability and sustainability in Australia,” Mr Beca said.
What does the data show?
Australia produces less milk now than it did 15 years ago, according to the Australian Bureau of Agricultural and Resource Economics (ABARES).
ABARES data also shows productivity in dairy has flatlined since 2004, despite other agricultural sectors seeing improvements.
The cost of production for milk in Australia has increased at a faster rate than other comparable southern hemisphere countries, according to Dairy Australia data.
According to Mr Beca, those facts show Australia’s competitive advantages for producing milk have eroded.
“For a business or an industry to make progress, normally you want to see a 2–3 per cent improvement in production over time,” Mr Beca said.
“In Australia there just hasn’t been growth.”
Less pasture and less profit?
The Australian dairy industry is concentrated around pasture-based production areas in the south-east.
There are significant cost advantages to cows grazing fresh grass as their primary source of nutrition.
“There has been a gradual farm system change which is producing more milk per cow from less pasture in the diet and higher levels of concentrate,” Mr Beca said.
“It explains the trend of decreasing profitability and sustainability.
“It impacts on almost every area of the cost structure negatively.”
Mr Beca has combined data from Dairy Australia with information from state primary industries departments to find, on average, the higher the percentage of pasture in the cows’ diet, the greater the profit.
Over the past 15 years, the amount of pasture Australian dairy cows are consuming, on average, has gone down.
In Victoria, it has reduced from about 66 per cent to just over 50 per cent, according to Dairy Australia.
Even in Tasmania, where reliable rainfall and the rollout of high-surety irrigation schemes has made it easier to grow high-quality grass year round, the proportion of pasture in the diet of dairy cows slid from 81 per cent to 72 per cent.
Mr Beca said that accounted somewhat for a loss in profitability.
Dairy Australia, a levy-funded organisation that aims to “help achieve a profitable, sustainable dairy industry”, declined to be interviewed for this story.
asmanian dairy farmer Paul Lambert milks 600 cows on his farm in the state’s north-west and invests in other Tasmanian farms.
He said he had started feeding more grain to his cows.
“But with grain, even though you can get higher production per cow, it may be costing you money to put extra in if you don’t do the numbers,” Mr Lambert said.
Despite increasing grain being fed to his herd, pasture still represented about 80 per cent of its diet.
Other impacts on profitability
The Dairy Australia website highlights that drought has affected Australia’s milk production over the past two decades.
Drier seasons across the eastern seaboard have also made it harder to grow on-farm feed.
Damien Carpenter, who has milked cows in north-east Victoria and north-west Tasmania, said the availability and cost of water affected how much pasture was grown, especially in dry seasons.
“There is a cost at which it is too expensive to use water to grow grass,” he said.
Mr Carpenter said water had a big impact on Victorian farm systems.
“In north-east Victoria we would use anywhere from 13–15 megalitres of water to the hectare and then rainwater on top of that,” he said.
“Down here in Tassie most people get a large portion of their water from on-farm storage, which is cheap.
“They have an irrigation season that’s only three months, not nine months, so most years in Tasmania we are using 4–5 megalitres a hectare.”
Meanwhile, Australian dairy farmers are getting more bang for buck from their pasture, with programs run by Dairy Australia increasing how much grass grown on the farm is actually consumed by the cows.
Price pain not the whole story
Over the past three years dairy farmers have had to find ways to keep costs down in a low milk price environment.
Mr Beca rejected the argument that the milk price crash of 2016 was to blame for the ongoing decline in farm profitability.
“[The] milk price in Australia over the last 15 years has been very competitive with all other exporting countries,” he said.
“Looking at the data, if anything Australia has always been normally at the higher end of the price scale.
“So changes in industry performance have happened over a period where milk price has remained competitive with every other country, but those other countries [like New Zealand, Argentina, Uruguay and South Africa] haven’t lost their sustainability or profitability.”
Mr Lambert said low prices were putting pressure on farmers.
“Even if milk prices are trending upwards, if you take inflation into account prices are actually going backwards slightly,” he said.
“So we have to remain extremely efficient to maintain our profitability. That’s why costs trending upwards really does need to be addressed.”
Mr Lambert said he hoped there was a refocusing of the pasture-based system across the industry.
“I think it would be really good for Dairy Australia to look at this data and have some scientific analysis done on what is the problem and how we can fix it,” he said.
By: Margot Kelly