Dairy insider says Australia is transforming from a major dairy exporter to an importer

Former Warrnambool Cheese & Butter managing director and chief executive officer John McLean said the current situation was "unprecedented".

"I've never seen anything like it," he said.

Mr McLean said less than 10 years ago it was predicted Australian milk production would reach 12 billion litres a year.

He said the current annual supply was about eight billion litres - or less.

"More and more dairy products will be imported into Australia. In the not too distant future we will be a very big importer of dairy," he said.

"That's amazing as not long ago we were a major exporter.

"It's the supply and demand trick. It looks like we will soon be producing seven or even six billion litres a year in Australia.

"I know it's a bit dramatic, but we're looking at halving the milk pool in 10 years.

"It is an amazing situation. I've never seen anything like it."

New data has revealed Victorian milk production continues to decline, dropping 9 per cent for the month of June, compared with the same period in 2021.

Dairy Australia reported 406,019 million litres of milk was produced in June 2021, compared with 369, 518m litres for this year.

In western Victoria, financial year production dropped by 4.1 per cent, from 5,650,790 in 2020-21 to 5,419,976 litres in 2021-22.

Dairy Australia Industry Insights and Analysis manager John Droppert said the late season drop was larger than expected.

Mr McLean said previously there were three players in the south-west market - Murray Goulburn, Fonterra and Warrnambool Cheese & Butter with all selling into the international export market.

But, that market was subject to factors outside the control of Australia, such as exchange rates and world prices.

"We were at the mercy of world prices," he said.

"Farmers were saying we weren't doing enough and they were probably right.

"Now the only manufacturing that is taking place is in Tasmania and south-west Victoria.

"In every other state dairy liquid is sold to major cities like Brisbane and Perth for the domestic market."

Mr McLean said the dairy industry was now flooded with traders - on last count there was something like "17 so-called dairy companies".

"Most are traders with no manufacturing capabilities. They are brokers buying for X and selling for Y," he said.

"And in addition there's Coles and then Fonterra has the Woolworths Fresh contracts.

"You have 20 farms getting together and calling themselves a dairy company.

"People are knocking on farm gates and farmers are being offered five different cash flows. Many are bouncing around.

"Fonterra, Saputo and Bega are not selling as much on the export market.

"It's really becoming a domestic market. I don't really know what the answer is."

Mr McLean said in addition farms that came on the market were quickly snapped up.

"Beef producers are buying in," he said.

"Farmers have a lot of equity in their properties and they can buy. Average dairy farm prices have gone from $5000 per acre and they're now $10,000 plus."

Mr McLean said there was a dwindling number of suppliers, with Warrnambool dropping from 600 suppliers.

"The last I heard was that 600 had dropped by 186, who had gone to something else," he said.

"Dairy staff and the availability of staff has also had a big impact. A lot of people worked very hard. Milking cows is not an easy job.

"It's seven-days-a-week, and seven nights.

"Dairy farmers, many over 50, have decided they don't need to bust a gut any more, they've decided to run a few beefies (beef cattle) and sit back, comfortable with the equity in their farms.

"It's a nice nest egg, they can back off and be very comfortable.

"We are just not looking at importing dairy, it's going to happen and we are going to be major importers."

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