The report found that dairy demand remains very positive with international dairy prices reaching record levels.

Dairy Australia Managing Director, Mike Ginnivan, said that the affects of drought continue to adversely impact more than 75% of farmers in some way.

“Dry conditions contributed to an increase in grain usage in the past year. The shortages of on-farm feed affected a large number of farmers with 47% required to rely entirely on bought feed for at least some part of the year,” said Dr. Ginnivan.

The report, which includes the results of a national survey of 1000 dairy farmers, found that farmer confidence had improved significantly in 2008.

Situation and Outlook co-author and Dairy Australia’s Strategy and Knowledge Manager, Joanne Bills, said the survey showed the industry in the most optimistic mood since its inception in 2004.

“Improved milk prices at farmgate level have certainly been the main driver of increased farmer confidence. However, that confidence hasn’t yet translated into an intention to increase production over the next three years. Climate remains the major future challenge for 17% of farmers, in line with future cost and availability of irrigation water,” said Ms Bills.

Farmers have taken advantage of improved milk returns to increase on-farm investments which appear to be aimed at shoring up their existing systems rather than seeking to expand.

Dairy Australia General Manager of Trade and Strategy, Chris Phillips, said the global market for dairy products has fundamentally changed in the past two years as demand has grown and supply has significantly tightened.

“A strong global economy has underpinned demand in importing countries. The growing consumption in large milk producing countries such as Brazil, Russia and China means they continue to import dairy to meet their demand.”

“The fundamentals of demand for dairy in developing markets have not been undone by moderately higher retail prices. In fact, in many of these countries, expanding middle classes are unlikely to stop consuming dairy as income growth is helping to offset the higher costs.”

“The improving perception of the nutrition, convenience and taste of dairy products is sustaining consumer demand,” said Mr Phillips.

According to the report, the world market conditions for dairy commodities have been aided by increased prices for a number of competing and alternative food groups. Shortages in grain commodities available for food – due to the combined effects of production shortages and demand for biofuels production in the US, Brazil and the EU – has increased the costs of grains and vegetable oils on world markets.

Dr Ginnivan added, “Policy decisions relating to emerging climate and food security debates will pose challenges. The industry will need to carefully work through these issues if it is to take full advantage of what is fundamentally a very positive market outlook.”

Produced by Dairy Australia, with support from industry organisations, the Situation and Outlook report is a key example of collective industry activity.

The report is compiled each year to provide a clear picture of the industry, its key drivers and expectations for the future. As well as a national survey of dairy farmers, it includes the views of global dairy market analysts, retail analysts, dairy company management, farm consultants and farm leaders.

It is designed to help farmers make informed decisions, as well as provide factual insights into dairy for banks, governments and suppliers of products and services to the dairy industry.

Australian Dairy Farmers (ADF) Chief Executive Officer, Lisa Wilson, is supportive of the Situation and Outlook report.

“This report is a high quality intelligence tool enabling farmers, the industry and government to gain important insights to inform decision making.  For ADF, it confirms the policy priorities we need to focus on to support farmers in maintaining and building sustainable farm productivity, profitability and confidence.  Climate change, water security and feed costs are clearly among the highest priorities we need to navigate through if the industry is to sustain its valuable contribution to our nation,” said Ms Wilson.

Click here to download a copy of the Situation and Outlook summary report

Click here to download a copy of the Situation and Outlook full report

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