Australians have become accustomed to paying more at the till for basic goods in recent times due to the rising cost of living and high inflation levels.
But now there are warnings that consumers could pay as much as 30 per cent more for milk.
The dairy industry has been impacted by unfavourable wet conditions across the country, which has been exacerbated by ongoing labour shortages and high production costs.
Rabobank’s senior analyst of dairy and consumer foods Michael Harvey said it was “quite challenging” for most farmers at the moment.
“Clearly, there‘s some challenges on farm … around labour shortages, high cost of production and then unfavourable seasonal conditions,” he told 2GB on Wednesday.
“We are seeing farmers leaving the industry for other enterprise.
“Because of the labour shortages, the farmers that are investing for the long term are just a little bit cautious about investing for growth because they‘re not quite sure there’s gonna be enough labour to run a bigger business.”
Mr Harvey said high production costs were “embedded” across the dairy industry and impacting the whole supply chain.
“So farmers have obviously got those high costs on farm around the cost of their feed, their fertiliser, their fuel,” he said.
“But then post farm gate, the dairy companies are obviously facing a high cost of milk. They’re also paying a lot more for packaging, distribution.
“So everything from getting it from farm into packaging into the consumers is coming at a very high cost.”
He indicated a 30 per cent rise in price could occur as the dairy industry navigated through these issues.
“That’s probably where (30 per cent) things might end by the time we come through this cycle,” Mr Harvey said.
“We are seeing retail prices for dairy products rising and we‘ve seen that really over the last couple of months.
“So when the September number comes out, we’re going to see another high consumer price index number for dairy.
“That’s why consumers are paying a little bit more for their dairy products because it’s really about just restoring margins in the supply chain so everyone’s making a little bit more money.”
If this 30 per cent rise comes into effect, it would mean the price of Dairy Farmers milk at Woolworths would go from:
$2.60 to $3.38 for a one litre bottle of full cream milk
$4 to $5.2 for a two litre bottle of full cream milk
$5.8 to $7.54 for a three litre bottle of full cream milk
Mr Harvey hoped prices would come back down over the next year but acknowledged challenges still existed.
“Hopefully, over the next 12 months we should see some stability return to that milk pool because there is good milk price signals,” he said.
“Hopefully, seasonal conditions improve, we don’t get any more flooding, those sorts of things.
“But there’s those risks there that we see further disruption because it is a bit challenging on farm at the moment.”
The most recent consumer price index showed the price of dairy and related products in June rose by 1.3 per cent compared with the previous quarter and by 5.2 per cent over the course of a year.
The federal government’s department of agriculture, fisheries and forestry advised the price of farmgate milk had reached a record high of 72.5 cents per litre during the September quarter.
It said this 28 per cent rise was driven by competition between processors.