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Australian dairy sector is shrinking – Three lessons for Indian dairy industry

April 30, 2024
11:55 am
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Updated 7 months ago

The latest dairy market review report by FAO for the year 2023 unleashed some interesting insights. Three trends were noticed which are worth sharing .

1.In 2023, the FAO Dairy Price Index averaged 123.7, down 17.3% from 2022.

2.In 2023, global milk production rose by 1.5% to 965.7 million tonnes, driven mainly by growth in Asia, accounting for 46% of global output.

2. In 2023, international dairy product exports totaled 84.7 million tonnes, marking a second consecutive year of decline. However, the year-on-year decrease was less severe at 1.0%, compared to 4.3% in the previous year.

In nut shell 2023 was a unique year in which Dairy prices weakened ,milk production expanded but dairy trade contracted globally.

In 2023 another report got my attention. This report “Australian Food Story: Feeding the Nation and Beyond” was an inquiry into food security in Australia. Australia has a long history of dairy development. The Australian dairy industry originated in 1837 in south region with European settlers producing milk, cheese, and butter for the community, mainly in the Adelaide Plains and Adelaide Hills. Let’s glean valuable insights from this report and apply the lessons to the Indian dairy sector.

In the 2021–22 period, Australia’s dairy sector yielded approximately 8.5 billion liters of milk from 1.34 million cows, valued at $4.9 billion at the farmgate. This marked the industry’s lowest output since at least 1996–97.

According to Australian Dairy Farmers Ltd., this decline began after deregulation in 2000 and a shift away from bulk commodity dairy exports. Factors contributing to this downturn include rising input costs, stagnant productivity, decreased export market share, social acceptance challenges, shifting consumer preferences, alterations in production systems, and the impact of climate change.

In September 2020, the Australian Dairy Products Federation (ADPF) announced the launch of the Australian Dairy Plan, aiming to bolster the industry’s profitability and confidence for the future. The plan set an ambitious target of boosting milk production to at least 9.6 billion liters by 2024–25, generating approximately $500 million in additional value at the farmgate. However, the ADPF reported that despite offering record high farmgate milk prices to farmers, the anticipated increase in raw milk production has not materialized.

The report further addd that “The dairy processing sector creates $16 billion in revenue annually, contributing $12.4 billion to gross domestic product.This more than triples the value of raw milk between farmgate and the consumer.There are about 200 processing companies, although ten diary manufacturers process most of the milk”.

Per capita, Australians consume approximately 93 liters of milk, though this has seen a recent slight decline. Consumption trends within the domestic market vary across different dairy products, mirroring shifts in consumer preferences and food trends. Notably, there’s a rising popularity in plant-based alternatives, including alternative milks.

In 2021–22, imports of dairy products amounted to 19% of Australian milk production. This marks a notable rise from 9% in 2006–07. Projections indicate that this trend will persist, with dairy imports forecasted to surge to over 25% of production by 2030.

The dairy sector faces a range of challenges, but probably none greater than raising the level of raw milk production. As the ADPF ( Australian Dairy producers Federation) put it:

Australia currently produces enough milk to meet domestic demand for drinking milk, with excess and imported product enabling manufacturers the choice to divert milk into higher value dairy products. But as raw milk production continues to decline and input costs continue to rise, the risk and reliance on imported dairy products could escalate and hence a need to balance and solve for both.

This lends to the question ‘what is the ideal level of “self-sufficiency” to best manage dairy production costs and remain cost competitive, while assuring security of supply?

Lessons from Australian dairy sector for India

India, the world’s largest milk producer, is on a path of aggressive growth. However, doubts arise about actual milk production due to data from the NSSO on monthly per capita expenses on milk and milk products. These numbers suggest total milk consumption ranging between 125-170 billion liters, compared to the reported 220 billion liters. The Indian dairy sector grapples with the problem of plenty. Whenever milk production increases, farm gate prices dip. There’s a lack of mechanisms to improve situations for farmers, except for milk subsidies, which are mostly limited to farmers linked to state dairy cooperatives. The bigger issue lies with farmers who don’t receive these subsidies, posing a challenge for the entire farming community.

Subsidies aren’t just creating a problem of a level playing field for processors; they’re also discriminatory against farmers, especially women in dairy cooperatives. In Australia, despite having top-notch technologies, government support, high-quality milk, and global product acceptance, farmers are showing indifference to this historical vocation. This indifference is driven by high input costs and the inability of local processors to manufacture value-added products without competitive imported dairy products.

Comparing this situation with the Indian dairy sector, we lack both good quality milk and matching MRPs of dairy products for processors to make significant profits, even by selling value-added products.

The dairy processing sector in Australia creates $16 billion in revenue annually, contributing $12.4 billion to gross domestic product.This more than triples the value of raw milk between farm gate and the consumer.Still large processors like Lactalis, Saputo and some other national brands hav closed their operations as milk production is shrinking.

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Three learnings for India from the findings of Australian report

Farm business must be viable and profitable for farmers

A key element of food security is the viability and profitability of farm businesses. The National Farmers Federation (NFF) argued that Australia’s farmers were ‘ultimately responsible for Australia’s continued and sustainable food security’ and that ‘without viable and profitable farm businesses, Australia’s food production capacity would collapse’. NFF CEO Tony Mahar told the Committee:

…we must protect the viability of Australian farm businesses by addressing the increasing cost of critical inputs, the efficiency of Australia’s freight and logistics systems and the significant competition issues in the agricultural supply chain.

Learning for India-I

Similar measures are urgently required in the Indian context as well. It is imperative for policymakers to accurately assess the true cost of milk production in various farm settings nationwide. Evaluating the viability and profitability of dairy farms of all sizes is essential, and farm gate prices must be set to guarantee year-round profits for our farmers. It’s time to prioritize the well-being and sustainability of our dairy farming community.

2. Harness the potential of dairy exports for long term profitability of dairy farms

The NFF argued that ‘we must dispel the narrative that Australia’s export capacity in some way undermines domestic food security’. Rather, it explained, ‘it is our export capacity that enables the long-term profitability of Australia’s agricultural sector, and hence our ability to continue to produce food for domestic consumption’. The NFF asserted that ‘the ability of farmers to access export markets at prices competitive with international counterparts is key to the ongoing viability and profitability of our sector’.

Learning for India-II

Exports are pivotal for securing the long-term financial stability of our farmers. As policymakers, we cannot solely rely on initiatives like PLI or bilateral trade facilitation to promote dairy product exports. Instead, we must prioritise strengthening regulatory enforcement to guarantee the quality of milk production. Additionally, expediting the One Health program is crucial to enhance the acceptability of Indian milk and milk products in the developed world. It’s imperative that we take these steps to safeguard the future prosperity of our farming community.

3. Dairy production must ensure nutritional security first

The National Nutrition Policy would address ‘unhealthy food environments, reduce the incidence, prevalence and cost of diet-related health problems and promote health and wellbeing’. It would also look to ‘provide food and nutrition security for all Australians with a commitment to equitable action’. The policy would operate across government, involving departments beyond health, ‘and consider the role of sectors such as agriculture and trade’.

Learning for India-III

India must urgently update its National Nutrition Policy, which is over three decades old as seen on Food Nutrition Board website. The significance of milk in providing nutrition at all stages of life is undeniable. According to ICMR 2020, children require 500 ml of milk daily, while adults need 300 ml. With a population of 1.4 billion, totaling 25% children and 75% adults, the annual milk requirement is 178 billion liters. While DAHD data suggests adequacy, NSSO data hints at potential shortfalls.

I won’t delve into the grim statistics of anaemic mothers and malnourished children again. Our status as a top milk producer doesn’t ensure national nutritional security. Indian policymakers must act swiftly to reassess, acknowledging the crucial role of state dairy federations in midday meal programs and expanding the share of dairy in all kinds of nutritional support programs including those meant for BPL also.

I dread envisioning the Indian dairy industry mirroring the decline faced by the shrinking Australian dairy sector.Let’s proactively prioritise dairy as the cornerstone of national prosperity by doubling the dairy farmers income.