Australian dairying is a $3 billion industry, and it is one of the most important agricultural industries in Australia, together with beef and wheat. Its role on rural employment, as well as on food supply, makes it key for the country. Although Australia is a relatively small dairy producer at global level, accounting for less than 2% of world’s milk production, it is one of the world’s largest exporters of dairy products.

Nowadays, there are approximately 1.5 million cows in the country, distributed in around 5800 registered dairy farms, which produce ~9 million metric tons (MMT) of milk yearly. Since deregulation of the industry in 2000, production has remained relatively stable, while herd size increased, and the number of farms decreased.

There are eight dairy regions in Australia, which can be differenced into two groups considering the features of their production system (calving period) and location (south or west).

Most of the milk production occurs in the Southern Milk Region, comprising the south-east seaboard regions (Victoria, South Australia and New South Wales) and Tasmania. The production in the Southern Milk Region is seasonal and is dependent on the calving dates of the spring. More than 60% of the Australian milk production occurs in Victoria, favored by the temperate climate, while Tasmania contributes to almost 11% of the national milk production.

This seasonal milk production is linked to the spring, with its peak in October, when pasture is most abundant, as the production is predominantly pasture-based in the southern regions. Pastures supply 60%-65% of the dairy cattle requirements and are combined with grain and fodder crops. To maximize the large production of milk within the peak period, these regions often process raw milk into other processed dairy products (cheese, milk powder…).

Calving is distributed throughout the year in the other production system, which is mainly present in Western Australia, Queensland and northern New South Wales. In this way, there is a more constant supply of raw milk, which is mainly directed towards the domestic fluid milk demand in the population’s centers in the area.

Australians have an average consumption per capita of 97 liters of milk, 13.6 kg of cheese, 4 kg of butter and 9.5 of yoghurt per year. Milk consumption is high compared to the world average, despite the domestic milk consumption accounts for 27% of all milk produced nationally. Cheese production accounts for nearly 40% of the total milk production, and 80% is manufactured in Victoria.

Australia is the fourth largest dairy exporter in the world, accounting for 5% share of world dairy trade, behind New Zealand, the EU and US. It exports roughly one third of milk produced each year. A large proportion of exports are in the form of value-added products such as cheese, butter, UHT milk and milk powders, mainly allocated in Asia.

Domestic milk production is usually covering the demand of fluid milk, being the importation very low and constant over the last years. Exportation of fluid milk is mostly done as UHT milk, destined mainly to China, which accounts for over half of all exports, and other five destinations which together account for another 40%, which are Singapore, Hong Kong, Malaysia, Philippines and Vietnam.

In 2022, milk production is forecasted to increase moderately (up to 9.1 MMT) after the decline of the last year linked to the COVID-19 lockdowns, which caused the closure of some farms, labor shortages and the transition of some farms to beef cattle production, which had higher prices and it is a less labor-intensive production system.

Despite of the lower milk production in 2021, China’s high demand for dairy products has led to a high growth in exports of dairy products. A widening gap in butter and whole milk powder (WMP) prices over cheese in the global market during 2021 resulted in manufacturers shifting temporary to butter and WMP, in contrast to the usual trend of the past years of a higher cheese production and exportation. Expectations for 2022 are to revert towards the increased cheese production.

Australian is a net exporter of cheese, which is usually the largest product exported, being exported a 42% of the total cheese produced. Japan has been the largest market for Australian cheese exports in the past years, accounting for almost 50% of the total exported cheese volumes, although China, the second largest destination, has kept growing in percentage.

Regarding butter, Australia consumes more butter than it produces, and it is a net importer of this kind of dairy product, sourced in its vast majority (85%) from New Zealand. Major destinations for exported butter were Thailand, Singapore and Malaysia, which transitioned in the last two years with China accounting now for 29% of the total Australian butter exports.

The five largest dairy processors in Australia accounted for 79% of the national volume and include two farmer-owned cooperatives and 3 foreign-owned or multinational companies.

Despite being one of the largest agricultural industries in Australia, the dairy industry faces significant challenges globally and domestically. Globally, increased input costs, especially fertilizer, fuel and grain prices, together with the milk oversupply and the lower international prices, have reduced processors margins and farm gate milk prices. Domestically, weather events, and water and labor availability are of great concern for many farmers and have reduced the investment and confidence of the sector.