Summary
SUMMARY
WHY INVEST IN WESTERN AUSTRALIA
INDUSTRY POSITION
The Western Australian dairy industry is undergoing rapid change in response to an increased domestic demand for milk, coupled with increased export opportunities for value-added products to SE Asia. The droughts in major dairying regions of Eastern Australia have clearly highlighted the state’s climatic advantages of low rainfall variability.
Significant changes at both a processor and farm level in this formerly market milk regulated state were required when the Australian dairy industry deregulated in 2000. Changes at a farm level resulted in increased herd sizes and efficiency gains resulting in competitive costs of production relative to Victoria and Tasmania.
At a processor level changes have occurred in ownership with additional capital invested to switch manufacturing to value-added products. This has resulted in significant increases in farm gate milk prices in the last 2 years. The shift in focus to growing milk production rather than maintaining the status quo has resulted in the introduction of growth incentives in the last 12 months, which has further increased farm gate prices.
Growing domestic and competitive and sustainable export markets, competitive costs of production, the impact of climate change on other dairy regions of Australia, the concept of ‘food miles’, and the availability of suitable resources have contributed to a change in the way this small but dynamic industry is viewed, as indicated by an increasing interest in dairy farm investment in the state.
The information in this report is provided as a ‘first step’ to assist investors make an informed assessment of the potential to invest in the dairy industry in Western Australia.
WHY INVEST IN WESTERN AUSTRALIA
Western Australia is an ideal location to establish a dairy enterprise. It has competitive advantages over other regions including:
Availability of resources including land for pasture based dairy production or grain for pasture/feedlot based dairy production. High quality dairy genetics are available and the state’s dairy herd is free from major diseases.
A reliable climate that has shown itself to be less susceptible to climate change than other dairy regions of Australia.
Competitive costs with many dairy farms having costs of production much lower than the average. Milk in WA can be produced for less than US$15 per 100 kg or $3.36/kg MS. Major tariff reductions and a continuing program of privatisation and deregulation of utilities have occurred lowering prices and increasing service levels.
A safe and predictable business environment provides stability required for investment with an inflation rate that has helped to control costs.
Ready access to Asian markets as Perth is within easy access of all Asian capitals. Proximity gives WA a transport advantage to SE Asia relative to Australia’s eastern dairy industries. Increasing volumes of liquid milk are to Singapore from WA.
Low capital cost to establish a dairy farm in comparison to other countries.
In January 2008, Western Australia’s four major processors - Challenge Dairy, Harvey Fresh, Fonterra and National Foods, together with the WA dairy farm industry (represented by Western Dairy and WA Farmers Dairy section) and government represented by the Department of Agriculture and Food, agreed to a set of common industry principles in relation to the future of the WA dairy industry. This truly representative group has agreed on the following:
- A commitment to sustainable, profitable growth across the supply chain.
- Increased positive image and sentiment across the industry
- A proactive and innovative approach to production and investment
- To emphasise the competitive advantages of the WA dairy industry
- Collaboration between all processors, government and industry to achieve industry goals.
The group agreed that a minimum of 85 million litres of additional milk was required from WA over the coming years to meet increased market demand.
More than 6 m tonnes of grain, growing domestic market, access to high value SE asian markets, cost effective milk production, climate, land, water. WA is a great location to invest in dairy