Australia’s domestic dairy market is continuing to deliver respectable volume and value growth, according to Dairy Australia’s Situation and Outlook report released Wednesday 4 June 2008.         

Australia’s domestic dairy market is continuing to deliver respectable volume and value growth, according to Dairy Australia’s Situation and Outlook report released today.

Dairy Australia’s Strategy and Knowledge Manager, Joanne Bills, said volume growth in the major dairy categories has been modest in the twelve months to March 2008.

“Cheese, dairy blends and yogurt categories have experienced a slight decline in volume – possibly due to consumers resisting higher retail prices. However, milk and butter have experienced stronger growth during this period,” said Ms Bills.

The report found that average retail price increases have been strong over the past year – generally above the rate of inflation across all major dairy product categories, although still lagging international price trends.

“Rising food prices have been high on the agenda of the new Federal Government, which called for a major Australian Competition & Consumer Commission (ACCC) enquiry examining the dynamics of the food retail market, particularly major supermarket chains.

“This has increased the resistance of retailers to accept and pass on higher prices from dairy manufacturers,” said Ms Bills.

Nevertheless, Ms Bills said dairy retail prices have increased more significantly since the last quarter of 2007 as manufacturers and retailers have had no choice but to pass increased costs onto consumers.

According to the report, supermarket sales of dairy products have increased by 7% in value in the 12 months to March, largely as a result of strong price increases.

“Value growth in dairy categories varies between four and 14%, but consumers have responded to the higher prices in some categories, such as cheese and dairy spreads, by purchasing less.”

“Also, milk volume sales are likely to continue growth – but recent sales data indicates that consumers may be ‘trading down’ from branded to private label products to limit the effect of price increases.”

“While private label accounts for a large share of drinking milk sales, the large grocery retailers are likely to take a more aggressive approach to private label in the future, particularly with cheese and yogurt,” she said.

With production lower than last year, a higher proportion of Australia’s milk would be expected to remain in the Australian market.

Ms Bills said, “With pressures on local margins retailers, in particular, are reluctant to allow the full passage of increased milk costs through to consumers. Also, with healthy export markets available manufacturers have a variety of market and product options open to them.”

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