Industry

In 2006/7, liquid milk was the largest value export product (50%) followed by ice cream (35%) and butter, cheese and cream (10%).

Western Australia is an ideal location to establish a dairy farm with local and export markets which are dedicated to taking you product. This is due to the ability of the State to provide “fresh” milk products to South East Asia.

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Features and location of farms.

The dairy industry in Western Australia is currently a pasture-based production system grazing annual pastures or perennial pastures, on farms located in the irrigation areas and the south west of the state. Cereal and protein grains sourced from the WA wheat belt are used to supplement pasture. Grains are always available due to the State’s large export volumes.

The industry is currently located in the southwest of the state which has a Mediterranean climate and associated winter rainfall pattern. The industry is located mainly within 50 km of the coast from Perth to Albany. Demand for increased production and urban pressure on the coastal strip provides the incentive for the industry to expand into new regions, including those that have been dairy areas in past decades.

The main existing dairy regions are

Northern:	Perth to Waroona
Central:	Waroona to Dardanup incorporating farms using water from the Harvey and Wellington Dams
Boyanup:	Boyanup to Busselton
Vasse:	Busselton to Cowaramup
Southwest:	Margaret River and Scott River
South Coast:	Northcliffe, coastal strip from Walpole to Albany

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Trends in Demand

Over the 5 years between 2000/1 to 2005/6, drinking milk has increased from 52 to 57% of total production with further increases expected due to the impact of population growth, as the minerals and energy resources boom in the north of the state drives economic development.

Figure. Milk sales versus milk production in Western Australia.

In addition, the demand for value-added manufactured products has increased such that insufficient milk now exists to meet this demand. While milk production in WA represents less than 4% of Australia’s total production, the demand for milk over the next 5 years at a state level is expected to be an additional 50 million required to meet domestic consumption and conservatively another 70 million required to meet export markets for milk and dairy ingredients in SE Asia. Processors and industry have identified that there is immediate market demand for an additional 85 million litres by 2010.

While some of the demand for additional production can come from current suppliers, new entrants are required to meet this demand for increased production.

Historically the Northern Region contained many dairy farms, however the numbers have fallen over time due to urban encroachment from Perth and Mandurah. As a consequence many farms in this geographic region are now located towards the southern end of the region (Waroona).

In the Central Region many dairy farms rely on flood irrigation using water from the Harvey Irrigation Scheme. The numbers of dairy farms in the Harvey area have fallen due to pressure from horticulture, hobby farms and urban enroachment. High pressure irrigation water is now supplied by pipeline in the Waroona and Harvey area by Harvey Water, a farmer owned co-operative. It is expected that flood irrigation will be phased out and replaced with alternative sprinkler irrigation systems in the coming years.

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Trends in Production

As a result of deregulation of the domestic milk market in Australia in 2000 the number of dairy farms in the state has declined – a trend which is similar to other dairy regions of Australia, particularly those formerly reliant on market milk production.

Over the 5-year period since 2000, total milk production in WA fell only 6% due to an increase in the average herd size however farm numbers in WA declined by more than 30%. In 2006/07, total milk production was 349 million litres (25 million kg of MS) from 222 registered dairy farms. Consequently, on average, WA producers are characterised by ‘scale’ economies relative to other Australian producers . While average production per farm in 2006/7 was 1,574,000 litres (112,000 kg MS) more than 50% of total milk production in the state is produced by less than 20% of its producers.

Table. Average farm area and cattle numbers for dairy farms in 2005/6

Source: ABARE, Farm Surveys Report 2006.

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Breeds

Holstein-Friesian is the main breed in WA accounting for more than 90% of all dairy cows. Prior to deregulation, milk pricing was based on litres and milk quality with little emphasis on milk components. Such a payment system favoured Holstein-Friesians and their male offspring readily fitted into a steer production enterprise.

Since deregulation, the weighting given to milk components has increased. This has seen an increase in the use of other breeds, however Holstein-Friesians still dominant. This is reflected in the average fat and protein tests in WA versus the Australian average. In 2005/06 the WA average was 3.91 % fat versus an Australian average of 4.05%, while protein was 3.16% versus an Australian average of 3.31%. Hence when comparing prices between dairy regions, prices based on $/kg MS is more meaningful than those based on c/L.

As processors have different requirements the emphasis on milk components varies according to the processor and this is starting to be reflected in breed selection. For example the main markets for National Foods and Harvey Fresh are for liquid milk and their pricing structure emphasises litres rather than components. Producers supplying these companies have tended to remain faithful to Holstein-Friesians.

In contrast Fonterra and Challenge Co-operative have markets for both liquid milk and value added manufactured products (ice cream and food ingredients), which is reflected by a pricing structure weighted more towards components not litres. As a consequence producers supplying these processors are exploring NZ Friesian genetics, crossbreeds or other breeds as alternatives to the Holstein-Friesian.

Regardless, the widespread use of purebred Holstein-Friesians has enabled many producers in the industry to take advantage of the export heifer market in particular the Chinese and Mexico markets, and to a lesser extent the Australian domestic heifer market.

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Processing sector

There are 4 major processors in the state; two multinationals (Fonterra and National Foods), one private company (Harvey Fresh) and one joint venture owned by QAF (Singapore) and a Western Australian farmer owned entity (Challenge Dairy Co-operative).

These processors have plants in Perth (Fonterra/National Foods), Brunswick (Fonterra), Harvey (Harvey Fresh) Boyanup and Capel (Challenge Dairy Co-operative).

Product mix varies according to processor.

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