Australian milk production declining as consumer dairy product demand rises. Photo / 123rf
New Zealand dairy earnings from Australia have ballooned as Aussie processors short of milk and needing products made for their customers line up at our dairy companies’ doors.
Open Country Dairy, New Zealand’s second-biggest dairy
processor and exporter, said it has had a 40 per lift in demand for product from its Australian customers. South Island-based Westland Milk Products said it had been turning away approaches from across the Tasman.
New Zealand industry leader Fonterra, one of the world’s biggest dairy companies, said it was continuing to see strong demand from Australia.
New Zealand’s biggest business was not surprised to be getting more inquiries for milk solids, said Josh Sigmund, Fonterra’s managing director NZMP Asia Pacific.
It was a result of an increase in consumer product spending at a time when there were supply chain challenges in distant markets and the Australian milk pool was declining and limiting milk supply, he said.
New Zealand dairy exports to Australia in the first nine months of this year earned $8.6 billion, according to Statistics NZ figures. This compares to $7.34b in the full 2021 year.
Steve Koekemoer, chief executive of 100 per cent New Zealand-owned Open Country Dairy, said milk supply in Australia had been declining for some time, and dairy product manufacturers were “struggling now” to obtain supply of ingredients products like milk powders.
“They’ve switched their product mix away from wholemilk powder and I think they’re channelling their milk into higher value consumer products when they can.”
In a declining milk supply, this left them short of ingredients product.
“I think they’re diverting a lot of milk into cheese for example. Cheese is delivering a better result for farmers [to meet the contracted price with farmers] compared to wholemilk powder. That leaves less milk for wholemilk powder. A good source of that is New Zealand.”
Koekemoer said the increase in demand was coming from existing customers and traders, not new customers.
Westland Milk Products chief executive Richard Wyeth said he’d had approaches from Australian companies that had locked in a high minimum fixed milk price, of for example, $10/kg milksolids, with their farmer suppliers at the start of the season and could see New Zealand milk was cheaper at $9/kg. At the same time the Australian milk supply was declining.
“The Australians are over here trying to buy cheap milk off us. They’ve got farmers literally walking off the land because they can’t be bothered any more or have built sufficient equity in their land to put on beef cattle. So with declining milk and a high milk price they’re coming to New Zealand to fulfill their export opportunities.
“They get New Zealand [dairy] companies to do third-party manufacturing for them and either send the product to Australia or direct to their customer.”
Wyeth said the Australians that had approached Westland were mostly looking for higher value product for food service or consumer product customers. He had never seen an Australian demand increase like it before, but Westland wasn’t responding at this stage.
“We’ve got plenty of homes already for our milk.”
New Zealand’s own milk production is flatlining and expected to decline due to environmental and compliance restrictions and regulations and changing land use.
Fonterra also has manufacturing plants in Australia.
Sigmund said the company operated a long-standing dual supply model for Australia, importing New Zealand product alongside its production there.
Dairy Australia’s latest situation and outlook report said Australian farmers were enjoying a year of record dairy farmgate milk prices, driven by “stiff competition for milk among processors”.
It said Australia’s 2021-2022 milk season had concluded with production down by about 3.5 per cent on the previous season.
Margins for Australian milk processors were looking tighter as commodity prices and continued to retreat, the report said.