The milk jug sitting on the kitchen table of the WA Dairy Industry currently has 72 million litres (ML) less milk in it, on an annual basis, than it did in 2000, when Dairy Australia commenced keeping production records. The reduction from 412ML in 2000 to 340 ML in 2022 equates to 1.39ML less milk each week, or a drop of 18%. The question on many West Australians’ minds will be, “Is there going to be enough milk for me to get my morning flat white coffee, as I can’t function without it?”.
The WA industry deregulated in 2000, resulting in the exit of a number of farmers, with a corresponding, rapid decline in milk production. In 2008, output had fallen to 319 ML and the state was concerned about where it would get its milk from. The processors adapted by stopping the production of icecream, substituting milk powers into some manufactured products, reducing the amount of cheese that they made, eliminating some products from their production lists and turning to importing milk from the east coast by rail and truck. But still the decline in milk supply continued. Increases in the price that was being paid for milk in 2008 and 2009, combined with some good seasons, turned the milk supply around. For the next few years, milk production in WA fluctuated, driven by seasons, movements in costs and the natural progression of some farmers out of the industry. Farmers responded to further price increases in 2014, driving milk production back to within 20ML of the 2000 level.
During the same 15 year period, the ownership and management of a number of the processors changed, resulting in a move to matching milk supply to daily or weekly milk requirements. There was a reluctance to manage the normal increase in spring milk production, by processing this milk into less profitable products – cheese and UHT milk. One processor decided that they needed to have less milk in their jug and in 2018 they decided not to renew the contracts of four farmers. A second processor considered doing the same. Uncertainty crept in and since then the milk jug on the table of the WA industry has continued to have less milk in it. In the last 6 years the annual WA milk production has fallen by 52ML, with a whopping 22ML decline in just the last year.
Why has production fallen so much? As all farmers know, production costs have increased, labour has been hard to find, and farmers have found themselves working harder and longer for less return. Fortunately, for the first time for many years, dairy farmers have recently found themselves with an alternative income stream, and it requires less work. A strong live export market has doubled the price of Holstein heifers. Strong beef prices have significantly increased the price of cull-cows, and greatly increased the price of all young dairy and dairy/beef cross animals. WA has had tens of thousands of dairy heifers leave the state over the last 5 years. Most have calved down in China and Japan. Many farmers have taken advantage of the very high meat prices by culling very large numbers of cows. Both these factors have had the impact of reducing the size of the WA herd. So, with no significant movement in milk pricing, many farmers have chosen to reduce their milk production as a way to deal with less labour and higher fertiliser, grain, labour and fuel costs.
The good news is that the processors seem to have formed the view that this decline in milk production could continue, placing their ability to supply the WA domestic market at risk. They have responded with milk price increases in the vicinity of 20%. The belated milk price increase has been welcomed by people who really do want to be dairy farmers. But will it stop the milk production decline? A presentation at the recent WAFarmers conference showed that the milk price increases will just cover the increases in production costs that have occurred over the last 18 months. The advice given to farmers was to keep doing what they do and not to cut back on inputs, because the price increase will cover the cost. That was the good news. The news for the processors was that the milk price increase is unlikely to result in additional milk production. The price of export heifers has increased again, and the labour shortage issue has not changed. Both factors will tempt many farmers to continue to sell heifers, thus reducing their milk production ability.
Farmers, processors and suppliers to the dairy farm sector all want to see the milk jug on the WA production table stay, at least, at the current level. While the processors have topped up their milk supply by importing milk from the east coast using trucks and rail, the associated financial and carbon emission costs, and the recent east coast milk price increases, indicate that processors are looking to the more sustainable solution - paying WA farmers a price that they need to continue to produce and supply the milk needed in this state. Hopefully this will ensure that WA consumers have sufficient milk for their breakfast cereals and for that cup of coffee that so many of us cannot function without! However, with the key fertiliser, grain, energy and labour production costs likely to stay the same for the near future, it will be interesting to see if additional milk price increases will be needed to ensure an increased WA milk supply.
How much milk will be in the milk jug sitting on the WA Dairy Industry kitchen table this time next year? This author thinks less than this year, mainly due to the number of heifers and cows that have exited from the WA herd. The WA public can still be assured of being able to get their much needed coffee to start their days, at least for now. But if the downward trend in milk production continues this may not be the case in few years' time.
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