Agribusiness Perspectives Papers 1997/98

Paper 5
ISSN 1442-6951

The Australian Dairy Industry

Mr. Philip Bruem - Deputy Chair Dairy Farmers Ltd.

The dairy sector around the world is highly influenced by the agricultural policy of Governments.

Throughout the world, the industry is confronted by a series of major changes which include consumer demand, distribution and agricultural and trade policies.

Milk production is affected by price support and production quotas, while export subsidies, import tariffs and import quotas have a major impact on trade flows.

International trade agreements affect national dairy polices. In particular the GATT agreement has a significant effect on the dairy industry. The agreement deals with: Market access, international support and export subsidies.

The Uruguay Round has actually left the opportunity for most South East Asian countries to increase tariffs for dairy imports from their current levels.

The Australian Government needs to recognize how important tariff bargaining is to exporters and potential exporters.

Rightly or wrongly, it appears we take soft options when dealing with imports into Australia without gaining significant trade offs for our goods when entering other countries.

It is also important for the Government officials to work very closely with industry to gain full knowledge of experiences relating to tariffs. There is a tendency to talk only in relation to commodity products rather than special or branded products.

An example is Indonesia, where cheese has a tariff rate of 50% moving to 40% in the year 2004. Bulk whole milk powder for infants has a tariff rate of 238% (up from 30% in 1995) moving to 210% in 2004. Not a big concession on the part of Indonesia.

The basis for long term export growth in the Australian dairy industry stems from its' world competitiveness at farm level.

It is important all sectors within Australia do not neglect "on farm" competitiveness as competitiveness is not a static situation. It is forever changing and leadership in this field cannot be assumed in the future simply because it has been there in the past. This is perhaps a topic, which should be addressed separately.

Australia is dependent upon growth and within the domestic sector consumption of diary products is growing at no more than 2% p.a.

I am reluctant to claim the Dairy Industry as the leading light for agribusiness export, however I am prepared to say we are driven by necessity to develop and grow export trade.

Asian markets are currently experiencing double digit growth; consequently export opportunities provide the Australian dairy industry its only real option for growth.

It is estimated that the proportion of world trade in food and beverages taken up by South East Asia will grow from 19% in 1990 to 40% in 2010.

Asia offers a unique market and unique customers. Possibly this uniqueness stems from the fact it is a relatively new market. New markets offer new opportunities through new relationships. Exporting is not about spot sales or big deals nor is it about "getting rid of surplus". Exporting is about building relationships and providing security, reliability and technical excellence, thus assuring customer satisfaction.

The CEO of Dairy Farmers Group frequently refers to his desire for the co-operative to succeed in providing difficult to produce exports. He continually highlights the reality that if a specialist industrial product is difficult to perfect then it is equally difficult for competitors to master. Working with customers to produce specialist products is an excellent process of building relation ships and a degree of permanency.

When seeking export markets appropriate planning is essential. Choice of target markets will influence both short and long term viability. For example, world skimmed milk powder consumption is declining. The world average per capita consumption of liquid milk has been relatively stable of the last decade. However, worldwide consumption of milk products or dairy foods is growing, again highlighting the need for Government to bargain outside of commodity products.

If we look at specific markets in most Asian countries, milk is not part of the traditional food supply, but consumption is growing. Although per capita consumption of liquid ilk is relatively low, total consumption is significant because of the high population. Yogurts, butter, cheese all have similar low per capital consumption but are increasing.

These trends in consumption growth coincide with Asia's inability to be self sufficient in production with the local supply base shrinking.

Asia as a region is a large growth market both for bulk pro8ducts an increasingly for products of higher added value.

The group I represent recognize the potential in Asia for our value-added products and are committed to this exciting future.

Dairy Farmers Group increased exports form less than $100,000 in 1992 to $35 million in 1996/97 and projected $65M in 1997/98.

Dairy Farmers, although pleased with its' progress over the past five years is committed to increasing this relatively low portion of its business which is only 3.5% of its' revenues. We believe the security for our farmer owners and the strategic balance of the business will not be satisfied until the international sector generates in excess of 25% of revenues.

The aim is to increase international revenues to $200M during the next four years and this will still fall short of the desired level.

Dairy Farmers Co-operative is primed to exploit the opportunities, which can provide gains not only for the airy industry but also for the Australian economy.

Australia's geographical proximity to the consumer markets of Asia and our competitive advantages in agriculture offers Australia the opportunity to transform itself into a food bowl for millions of regional consumers. The Australian diary industry's growth and maturity is being characterized by a new era of increasing self-reliance largely brought about by leading the export path particularly to Asia.

If Governments wish to encourage export trade, and I know they do, it is their responsibility to ensure tariff bargaining achieves the right deal to suit not only customers but also Australia.