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Special Article - The Victorian Dairy Industry
A critical period for the dairy industry was in 1973 when the United Kingdom joined the European Economic Community and access to European markets was cut. The industry had to find new markets and improve its international competitiveness. There was a significant rationalisation in the industry (note the large drop in numbers of farms between 1970 and 1975 shown in table 2). There was also a major change in the product mix over this period. Butter production was reduced by over 60% while cheese production more than doubled. Australia had to find new markets for its dairy products. Asia offered great opportunities and Japan became our most important market for dairy products. Currently over 70% of dairy exports go to Asia and South East Asia.
Source: Australian Dairy Corporation
Milk has two primary uses, firstly for the fresh liquid milk market and secondly for the production of manufactured products (such as cheese and butter) for domestic and export markets.
In 1933 the Victorian Milk Board was formed under State legislation with the objectives of ensuring quality control and a regular supply of fresh milk to the community. The price farmers received for their milk and the price consumers paid was also controlled.
There have been numerous changes since the establishment of the original Victorian Milk Board. Currently the Victorian Dairy Industry Authority is responsible for the regulation of the liquid milk market including promotion, pricing, distribution and quality. The regulation of retail pricing, distribution and sourcing of liquid milk has been progressively removed. Full deregulation of the liquid milk market is expected to proceed under national competition policy requirements, and is likely to be completed by the turn of the century. The expected increase in competition from deregulation should result in generally lower prices to consumers, increased diversity of products and better utilisation of industry infrastructure and plant, making for an even more efficient industry.
Maintaining the competitive edge
Research, extension and quality assurance services have played an important part in the development of the dairy industry. Increases in productivity, responsible use of the natural resource base and ensuring that milk produced is safe and free of contaminants, are the focus of government services to the Victorian dairy industry.
The increases in production and the international competitiveness of the industry are an indication of the level of uptake of improved farming practices by dairy farmers and improved genetic stock of dairy cows.
The introduction of artificial insemination in the 1950's allowed dairy farmers to progressively improve the production potential of their herds. The Australian Dairy Herd Improvement Scheme which began in 1982 has enabled more accurate evaluation of the breeding potential of dairy cattle and has been able to select cattle with traits that better match the needs of industry such as increased protein levels in milk. Combined with improved pasture species, increased use of fertiliser, improved pasture management and strategic grain feeding, the Victorian dairy industry has significantly improved on-farm productivity. Table 4 shows that the average annual per cow production has more than doubled since 1960.
‘Target 10’, which is the extension component of the Victorian dairy industry development program, has played an important role over the last five years in demonstrating to farmers the benefits of changing farming practices to improve profitability. Target 10 is an informal partnership between industry, government and agribusiness. The Victorian dairy industry is reliant upon a relatively low cost of milk production as a major source of competitive advantage with the rest of the world. This being the case, the Target 10 project initially set out to increase the utilisation of pasture by 10% on half of Victoria’s 8,000 dairy farms within five years. Over the first four years of the program, approximately 35% of farmers have participated in the grazing management program. The project has since been broadened to cover other priority farming issues including animal nutrition, farm development as well as soils and fertiliser management.
Manufactured dairy products
The manufacturing segment of the dairy industry has undergone substantial structural change over the past twenty-five years, particularly so in the last ten years enabling the industry to be internationally competitive. Changes have occurred in both the number and size of firms and in the product mix. Mergers and takeovers have featured in structural adjustment, and have resulted in greater concentration of ownership in the industry. The effect has been factory closures and increased investment in new plant and equipment at the remaining factories. Milk processing has made major technological progress in this time with advances such as large scale continuous cheesemaking plants, large capacity spray driers, ultrafiltration/reverse osmosis plants and ultra heat treatment of liquid milk. New technology has enabled the production of milk tailored to consumer requirements such as modified lactose, fat and calcium contents. The proportions of milk used for manufacturing are cheese 36%, skim milk powder and butter 40%, whole milk powder 14%, casein/butter 3% and other products 6%.
Industry forecasts for the dairy industry are confident due to anticipated gains from international trade reforms and continued demand from Asian markets. Strong competition in these markets will be maintained which will force farmers and processors to continue to achieve productivity gains. Victorian exports have concentrated on producing bulk commodities (cheese, butter, milk powder). In the medium term, processors are likely to shift production to products tailored to meet the specific needs of end-users.
On current trends, Victorian milk production is expected to increase from 5,482 ML to 10,800 ML in 2010 (70% of Australia's production). The number of farms is expected to decline from 8,275 to about 7,000 and the average herd size will increase from 145 cows to 250 cows. Annual production per cow will increase from about 4,745 litres to 5,800 litres. Eighty per cent of the Victorian herd will be artificially bred and 50% of herds will have automatic milk recording. Dairy farm numbers will generally contract with most concentration in West Gippsland due to residential and other land use pressures.
The image of Victorian dairy products and other food will play an important role in securing overseas and local markets. Community concerns over 'clean and green' production will reinforce the commitment of the dairy industry to produce milk in an environmentally responsible way. The dairy industry will continue to be a major contributor to the Victorian economy through increased export income and employment and profits to the rural sector.
Source: Primary Industries Division, Department of Natural Resources and Environment, Victoria
Article originally printed in Victorian Year Book, 1998 (ABS Cat. No. 1301.2)
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