No dairy farmer wanted to hear news that Russia has now imposed sanctions on Australian dairy products for the next 12 months.
Beef, pork, fruit and vegetables, seafood and poultry are also part of the Australian portfolio of agricultural trade to Russia, so many farmers right across the country were annoyed at last week’s unnecessary and unfair announcement from Moscow.
The Russian market is not insignificant for dairy. We export around 22,000 tonnes of product, mostly butter, worth $112 million in the past year alone. But the days are long gone of Australia first looking across to Europe to buy our dairy produce.
So if there is some good news sitting alongside the bad, it is that Australian dairy products heading to Asia are fast becoming one of this country’s export success stories.
It is important for our industry to explain the dairy exports story to everyday Australians because for over a decade most of the news headlines about dairy would probably get marked with a negative rather than positive assessment.
In the early 2000s industry deregulation saw a number farmers leave the land and our national volume of milk production started to ease. Soon after the drought hit many of the farmers who were left and then the GFC and the strong Australian currency took a heavy toll on industry growth.
All the while our New Zealand cousins saw dairy exports charge forward in leaps and bounds. But many would agree that we now on the cusp of significant success. So while Russian sanctions are not welcome, Asian and Middle Eastern based consumers are more than capable of making up for the bad news.
This primarily comes down to the greater Asian and Middle Eastern region’s middle class wanting more and more protein and higher quality food. Our dairy trade into China alone has been increasing by more than 10 per cent per annum in recent years.
Australia’s dairy exports to South-East Asia were worth $810 million in 2013, which now equates to nearly 30 percent of our total dairy exports. When it comes to the Asia market in particular, Aussie dairy farmers are more and more looking right across the region for trade opportunities. Australia is looking to conclude a free trade agreement with China by the end of this year, and the Minister for Trade has already described the China deal as the dairy deal. So a successful outcome building on what New Zealand achieved with China several years ago stands as our industry’s number one priority.
Dairy farmers and manufacturers are always making it clear to government the scale of potential export growth to our north. But to fully realise this growth we may well need to significantly scale up production volumes off the farm and ensure that we do this profitably.
In 2000 we produced 12 billion litres of milk a year. Nowadays we produce 3 billion less. To prompt a major increase in total milk production one of the things Australian dairy farms sorely need is a more developed investment landscape – using more channels of capital raising and a greater variety of equity arrangements.
Again, the good news is that investors are getting keener and keener on buying a healthy piece of the Australian dairy action. We are world-renowned for yielding safe, healthy and high quality dairy products for an increasingly discerning global customer. It is a strong starting point for any investor to consider when asking themselves whether to get into Australian dairy.
It is with this context in mind that Melbourne will next month play host to the first ever Dairy Farm Investment Forum. This event will focus proper attention on why international and domestic investors should put their capital behind our dairy farms, what the farmers will do with increased investment and where the options are for farmers who are increasingly looking to alternative models of attracting capital into their businesses without merely increasing bank debt.
So the Russian market can shun Australian dairy for a while. But in the meantime many international investors are looking towards us with a very keen eye. They are asking about the operating dynamics of a successful Australian dairy farm. They are recognizing that Australian dairy farms are a more promising investment prospect than many agricultural competitors. They want to know more about the regulatory framework experienced by our industry. And they are interested to better understand where new money will be spent on our farms.
The Investment Forum being hosted by Dairy Australia on 15 September gives investors a rare occasion to get a good look at what is on offer.
The Russian ban is definitely not a positive development for the Australian dairy industry and our farmers. We hope the Australian and Russian governments can remain in open dialogue and resolve the matter soon. But we can rest assured that the future of the Australian dairy industry looks good, despite some more negative headlines.
*Noel Campbell is president of Australian Dairy Farmers