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Forward Thinking Magazine : August 2011
59 As seen in Chart 3, during recent years, the dairy cow numbers in the four major milk exporters, New Zealand, Australia, European Union (EU-275) and the United States (US), have shown little, or in some cases declining, growth. For example, in Europe herd sizes fell 11 per cent between 2002 and 2009. Competition for inputs Dairy cows can be fed pasture from paddocks or, alternatively, they can be fed a grain based diet or a combination of both. In Australia, pasture production is the most common method, while in the US and increasingly in the European Union, most milk is now produced by cows which are grain fed. Cows are fed grain to maximise milk production per cow, meaning greater reliance on feed. Increased demand for grain feed and the demand generated by biofuels, has led to increased prices for these inputs. Higher grain prices not only increase the feed costs to intensive dairy farmers, but also discourage the use of feed and investment in intensive production systems. Where can we expand supply? As a result of accelerating demand from regions that lack dairy production capacity in combination with supply side constraints, Dairy Australia is projecting unmet demand of five to six billion litres of milk by 2019. Australia and New Zealand (Oceania) only account for six per cent of total world milk production, however these two countries provide more than half of global dairy trade. Efficient, export-oriented production models coupled with low domestic populations and proximity to key markets in Asia means this region has become the pivotal dairy supplier to world markets. Data from Food and Agricultural Policy Research Institute (FAPRI) highlights, that due to the competitive dairy production models in Australia and New Zealand, and proximity to key import markets in Asia, the share of Oceania milk product exports as a proportion of total net trade among the major exporting regions is expected to increase during the next 10 years. This may come at the expense of the higher cost producers in Europe and the US. Australia is expected to experience the greatest increase in the share of total net trade, climbing 15 per cent by 2019, compared to an 11 per cent share in 2010. In contrast, it is anticipated that EU market share will decrease to 21 per cent by 2019 compared to nearly 30 per cent in 2010. Australia In Australia the dairy industry comprises a large proportion of the rural economy. Measured in value of production, dairy comprises roughly 10 per cent of the agricultural sector in Australia, or $A3.8 billion in 2009. Dairy production is centred in the south-east corner of Australia, in the states of Victoria, Tasmania and South Australia. These areas combined comprise 80 per cent of national dairy output. Dairy production is concentrated in these coastal regions as these areas generally receive higher amounts of natural rainfall. These regions are export-focused, meaning that the prices received by producers in these regions are set by the world rather than the domestic market. The deregulated dairy industry in Australia has enabled greater flexibility to adapt to changing global market dynamics and capitalise on growing import demand from Asia. Certainly the geographical proximity to these major import markets is a key reason for this competitiveness. Australia is also less exposed to high international grain prices due to a low-cost production model based on a high proportion of grass-feeding operations. Conclusion Growing levels of disposable incomes across emerging economies has led to increased demand pressures on the available global dairy supply. Effectively, if more people are demanding dairy products, and are willing to pay for them, higher prices are likely to follow. Additionally, rising input costs across all major dairy production regions have also contributed to a structural shift in the global dairy markets. A combination of higher feed grain, fuel and land prices has led to a constrained incremental demand growth across the sector. As one of the few countries that produce a surplus of milk combined with a low-cost operating model, Australia is well placed to take advantage of the structural changes occurring within the global dairy sector. stock story