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ANALYSIS OF THE AUSTRALIAN DAIRY
INDUSTRY 2
Introduction
The Australian Dairy industry has experienced exponential growth over time. The growth
has been compounded with a variance in the cost of milk products with respect to the associated
inputs. According to Australian Dairy Industry Conference annual report (2016), the industry is
the third largest in total agricultural output, and is on a constant growth. The dairy industry
accounts for up to 8% of all gross agricultural output, translating to AUD$4.3 billion (ADIC,
2016). Additionally, the level of export of dairy products stands at AUD$3.0 billion, which
translates to 7.0% of the total agricultural export for Australia (Edwards, 2013). The last three
decades have seen a lot of dynamics in the Australian dairy industry due to the changing global
economic environment and security situations (ADIC, 2016). The annual report (2016) states that
the causes of these changes include drought that defines the demand and supply of commodities,
dynamics in the global markets, and termination of regulated pricing and outsourcing
mechanisms of milk and dairy products starting the year 2000. A decrease in domestic aid for
dairy farmers and reduced support for processing of milk commodities has also been associated
with the existing changes in the Australian dairy industry (Brennan, 2017).
It is estimated that there are close to 1.6 million dairy cows in Australia kept in over
7,000 farms across the country (Harris, 2014). The milk production capacity is estimated at 9,000
million liters (Harris, 2014). The temperate regions of the South-East are the main dairy
production zones in Australia (Brennan, 2017). However, all states produce milk and have
industries that facilitate the processing of various product. Fresh milk is also supplied to the
ANALYSIS OF THE AUSTRALIAN DAIRY
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neighboring towns and cities. The Australia Dairy Industry Conference (2016) observes that the
average herd per state is approximately 220 cows. Data reports indicate that close to 10% of the
dairy farms have excess of 500 cows that produce fresh milk and this accounts for 30% of the
total milk production (Edwards, 2013). The Australian Dairy Industry Conference (2016) report
that 45% of the Australian dairy farms have less than 250 cows yet account to approximately
20% of total milk production in the country. Annually, a single cow is averaged to produce 6000
liters of milk
Nonetheless, the production is high when the cows are fed with mixed rations as opposed to
pasture only (Brennan, 2017). As compared to other cows from the neighboring jurisdictions,
Australian-bred dairy cows tend to have a higher milk production capacity. Of the total fresh
dairy production, 20% is consumed annually while 80% is exported (Harris, 2015). The
Australian dairy industry contributes to the national income by employing excess of 5000 people.
Competitive Environment
The report by Harris (2015) indicates that there exists a competitive advantage for the
Australian dairy industry, at least according to the quoted numerical data related to the
production cost. It is projected that the annual income for the individual dairy farms will decline
by the year 2017; therefore, a unit drop of AUS$105,000 per farm (Harris, 2014). The decline is
associated with the rigidity in adopting new farming technologies and the negative consequences
of adopting some of the new technologies. The reduction in fodder production by individual
farmers is another leading cause of decline in the milk production in Australia as compared to
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other countries like New Zealand (Brennan, 2017). The changes in the significant input factors
are also responsible for the anticipated decline in dairy production. For instance, dairy cows,
human personnel, feeds and supplements are some of the inputs that experience variance thus
consequential change in the amount of output. Data quoted by the Australian Dairy Industry
Conference (2016) shows that the cost of grain feeds and hay have been on the decline in the
recent past resulting to a high demand and supply for dairy commodities.
The Australian government has made efforts to subsidize the cost of feeds for dairy
especially during Sumer and Spring increase the amount of pasture, thus overall dairy production
(Harris, 2015). Irrigation is highly practiced in the northern region and this serves as yet another
there is low income generation in the Subtropical of Western Australia and New South Wales but
Table 1: Financial Data and projections for the Year 2014 to 2017 (Australian Dairy Industry Conference, 2016)
Australia
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From Table 1 above, an addition in production cost over the years is evident. This recent
data is an indication of a drop in the total dairy revenues. The data also indicates eminent loses in
the dairy industry. Nevertheless, the dairy industry has a comparative advantage when the other
sectors of the economy are considered. According to Harris (2014), the country has adequate
trained personnel in the dairy industry. Enough pasture complemented with this expert personnel
is an assurance of growth and ultimate expansion of the dairy industry. Moreover, Australia has a
suitable pricing model that encourages the growth of the industry. For example, the government
Strategic Landscape
An analysis of the Australian Dairy Industry using the Porter’s Five Forces Approach
shows a thriving industry. A study of the macro and micro environments indicates that the
industry is doing well using the locally available resources. Local pasture, feeds, supplements,
and medication are the important drivers of dairy production profitability in Australia (Brennan,
2017). The approach also reveals the instances of threats such as substitute commodities,
established rivals within the industry, and the bargaining power of consumers and suppliers.
New entrants however, pose a low threat to the industry. The Australian dairy sector has
adequate control measures to address the theat. Of particular importance, there is no substitute
for milk in the industry (Edwards, 2013). This denies close competitors a methodology to enter
milk industry. The high productivity ensures that the industry growth is exponential and,
therefore, a reduction in the level of threats. Also, the industry has a robust internal framework
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that ensures low penetration by substitute industries thus competitive advantage for Australia
(Harris, 2015). Strong government policy in milk and dairy production supports access to capital
requirements hence, overall industrial growth. Edwards (2013) also notes that the Australian
dairy industry is thriving due to the good road and rail network connectivity of major markets.
The profit proceeds realized from commerce are ploughed back to the industry to realize extra
competitive advantage.
An analysis of the substitutes to the dairy products shows zero cases of similar
commodities that the buyers in Australia may access. The existence of similar products provides
the consumers with alternative options, an evaluation of the Australian industry reveals no close
substitutes thus no commodity options for the consumers. There is a consensus that milk
products do not have artificial substitutes that may create industrial competition (Harris, 2014).
This lack of substitutes is associated with the robust market control measures by the government
and sustainable quality of production coupled by the professed role of dairy products control in
Customers are important shareholders in any commercial venture since they exhibit a
strong market control capability, thus a bargaining power for the case of Australian dairy
industry. For instance, the demand for fresh milk results in the production of that specific as
opposed to other dairy products. Nonetheless, there is adequate control of demand through
effective market studies that establish the demand elasticity (Edwards, 2013). The extent of
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controlled by various market forces. Sensitivity to price changes and buyer information that
ensure market freedom for the buyers also exists in the Australian dairy industry.
In the case industry, there the control of suppliers is limited. This limitation is due to the
fact that the Australian dairy industry is managed by both the private and public sectors
(Brennan, 2017). The existence of equilibrium between the two sectors has led to robust growth
the industry is minimal with the external market. The little competition is because of the high
regulation of import products, thus the country ensures rapid growth of the local dairy industry.
Milk andliters 27.5 18.1 64.8 51.8 86.1 81.4 83.1 82.1 86.9 98.2
cream
Milk andtons 55.3 152.0 120.7 296.3 224.9 577.8 241.7 798.9 256.3 879.0
cream, in
powder,
granules or
other solid
form (excl.
skimmed
milk)
Skim milktons 83.7 196.0 166.0 373.7 210.0 466.7 190.2 673.8 198.7 673.8
powder
Butter andtons 47.9 116.0 76.8 159.4 123.6 290.5 107.5 291.0 107.5 297.5
other fats
and oils
Cheese andtons 53.3 184.4 116.4 401.9 219.9 807.1 219.0 951.0 218.3 1,034.4
curd
Yoghurt tons 1.6 2.9 3.0 7.6 2.8 7.0 3.0 8.1 2.6 8.3
Whey tons 14.4 10.0 35.2 36.2 45.8 67.3 41.3 83.1 45.8 84.5
ANALYSIS OF THE AUSTRALIAN DAIRY
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Casein tons 4.0 22.8 5.0 35.2 13.6 80.7 10.0 89.5 8.5 76.9
Other dairytons 10.5 23.2 21.7 46.0 19.2 38.1 13.8 44.5 15.1 39,.7
products
Table 2 provides a comparison on the export level between the local Australian market
and the external markets to draw the existing competitive advantage. From the analysis, it can be
concluded that cream and milk have been traditional export in the dairy industry. This also shows
that there is high local production of the two commodities enough to serve the local consumption
and surplus for export. Consequently, the high production results in high income for the farmers
(Brennan, 2017). More so, the export of milk powder and skim milk is showing a rising trend
suggesting surplus production over the years. This rising trend shows that the costs of external
production of dairy products are higher than the costs of internal production. For example, if
production in the foreign countries was low, the demand would be high. Nonetheless, this is not
an observation that can be deduced from Table 2. The result is low production cost at the local
Conclusion
This quantitative analysis shows that the Australian dairy industry is dynamic. The
changing nature of the industry is a consequence of the global market variations. Notably, the
country is experiencing a significant growth level and many opportunities for improving dairy
production. The growth is associated with favorable local and national aspect that enhance high
output. Market micro and macro factors also contribute to the success of the Australian dairy
industry. Strategic factors such as robust government policies, control of demand and supply, and
pricing also assist in the growth of the industry. As illustrated by the quoted studies, external
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production and consumption costs are high as compared to the internal environment. Therefore,
farmers are encouraged to engage in internal production as it has been proven to be cost
effective. However, there should be established a robust system of ensuring that the local farmers
are empowered to increase their production. These farmers should also be shielded from cartels
who shroud the local dairy industry to take advantage of the vulnerable famers. Through such
mechanisms, the Australian dairy industry will realize extra production for export as the local
market is already satisfied. This will result in increased revenues for the country necessary for
INDUSTRY 10
References
Brennan, I. (2017). ACCC Dairy Inquiry to hear from Farmers about Milk Processing Companies
dictating Unfair Prices. ABC News, retrieved August 27, 2017 from
http://www.abc.net.au/news/2017-01-25/dairy-farmers-to-share-industry-concerns-with-
accc/8210374
Edwards, G. (2013). The story of deregulation in the dairy industry. Australian Journal of
Harris, D.N. (2015). Industry Adjustment to Policy Reform: A Case Study of the Australian Dairy
Industry: A report for the Rural Industries Research and Development Corporation. Rural
Harris, D. (2014). Industry plans and dairy support policies in Australia. Paper presented at the
Bangkok, Thailand.