Australia's Dairy Industry: An In-depth Analysis

Australia stands as a significant contributor to the global dairy sector, producing approximately 8.8 billion liters of milk annually. The industry supports a robust dairy cattle herd of around 1.43 million, highlighting its crucial role in the international dairy supply chain. The country's processing capabilities can handle about 9.1 billion liters each year, effectively serving both domestic and international markets.

Milk Processing and Cheese Production

Emphasizing cheese production, Australia yields 365,000 tons annually, with forecasts predicting an increase to 435,000 tons by 2024. The country also produces 300,000 tons of milk powder and whey each year, primarily exporting these products to key markets like the United States, European Union, China, and Southeast Asia.

Key Market Players and Export Activities

Major companies such as Saputo Inc., Coles Group Limited, Beston Global Food Co., and Yili dominate the Australian dairy landscape. Despite achieving a record-breaking dairy export value of $3.44 billion, farmers face challenges with stagnant farmgate prices between $8.80 and $9.30 per kilogram of milk solids.

Recent Industry Developments

Recent developments include the sale of two processing plants by Saputo Inc. to Coles Group Limited and Beston's exploration of divestment opportunities. Coles has reduced cheese prices to enhance consumer accessibility. Notable changes include King Island Dairy's transformations and Beston's entry into administration, affecting employees and farmers. Challenges such as labor shortages at Saputo's Burnie plant and legal disputes, including Fonterra's case against Bega, highlight the industry's complexities.

Regional Focus: Victoria

Victoria accounts for 63% of Australia's milk supply but faces a severe housing crisis impacting workforce attraction. Climate change is prompting advancements in genetic research for heat-tolerant cattle and initiatives to legalize virtual fencing.

Weather and Other Challenges

Natural disasters have impacted over 80% of Australia's milk producers. The sector is recovering, with increased volume and value in dairy consumption. However, the 2025-26 dairy season opened with milk prices below production costs, raising supplier concerns.

Consumer Trends and Sustainability

Responding to growing consumer demand, companies like Bega Group are broadening their protein-rich product ranges. The industry is actively pursuing carbon neutrality through emission-reducing practices.

Community Engagement and Corporate Strategies

Saputo Dairy Australia has significantly contributed to communities, including a $100,000 donation for a playground in Tatura. Meanwhile, Bega seeks regulatory approval from the ACCC for a joint bid to acquire Fonterra's Oceania business.

Innovations and Legal Developments

Bubs Australia Limited is targeting growth in the infant nutrition sector. ACM's lawsuit against Fonterra highlights competitive tensions. Mechanical failures at a Bega plant in Tasmania have halted production, potentially leading to a milk shortage. Bega Cheese's acquisition proposal is under review by Australia's competition watchdog.

Future Outlook

Milk production growth in Australia is projected to be less than half a percentage point, with farmers in south-west Victoria urgently seeking long-term water security solutions amid recurring droughts. Concerns over potential factory closures following the sale of Fonterra's assets to Lactalis mark the end of Fonterra's two-decade presence in Australia, raising fears about the future of key Victorian factories.

Major Milestone in the Australian Dairy Processing Landscape

Pure Dairy has officially opened its significant $100 million processing plant in Dandenong South, Melbourne, marking a major milestone in the Australian dairy processing landscape. This represents the largest private investment in the Australian dairy sector in 40 years.

Research and Development

Research by The Product Makers in Australia highlights a promising natural solution for sugar reduction. Michael Wohlstadt, named Australia's 2025 Producer of the Year, operates on 32 hectares in South Australia's Barossa Valley, focusing on converting raw milk into high-end products.

Export Opportunities and Challenges

Milma expands to Australia with a strategic dairy export pact, and Australian exports to China increased by 5% by September 2025. However, Australian milk prices remain $1.50 below inflation due to a longstanding pricing war initiated by major supermarkets, impacting profitability across the supply chain.

Industry Governance

Dairy farmers in Australia contribute over $30 million annually to Dairy Australia through levies, though corporate interests significantly influence its strategic direction. Australian Dairy Farmers criticize the sale of US-made butter in Australia. The butter, packaged to resemble local products, has been criticized for misleading consumers about the product's origin.

Gippsland, a Notable Dairy Region

The GippsNature Organic A2 milk is formulated using Australian Certified Organic (ACO) A2 protein milk derived from free-grazing herds in Gippsland.

Tasmania's Dairy Sector

Laguna Bay is already one of the largest in Tasmania, managing a herd of 14,000 cows in Tasmania, Australia. The competitive pricing environment in Australia has seen other players, like Norco, offering rates equating to approximately $12.85 per kilogram milk solids. The Australian market remains strong, as evidenced by several recent processor price increases, suggesting a strong demand or tight supply within the local market, prompting processors to offer competitive prices to secure milk supply.

The Victorian Dairy Industry Challenges

The Victorian dairy industry confronts a challenging period marked by declining milk production and factory closures. Andrew Metcalfe is committed to ensuring the long-term sustainability of the Australian dairy supply chain.

Increased Distribution through Costco Australia

Dairyworks expanded its distribution through Costco Australia, contributing to its significant profit growth. Australia's milk production has seen a decline of 2.4% year-over-year in October. Australian milk production experienced a decline of 2.4% compared to the same period last year, with Victoria, a key milk-producing state, recording a 3.0% year-over-year decline in milk output. South Australia saw an 8.0% decline, while Tasmania had a smaller decline of 0.4%.

Australia is involved in the shift from cardboard cartons to plastic bottles in the dairy industry. Australian dairy manufacturers have increasingly used plastic bottles for fresh milk because they suit high-volume supermarket formats.

Compared to India, countries like Australia have higher average productivity of dairy cows. The low average productivity in India of 1.1 tonnes per cow per year is compared to 3.9–5.9 tonnes in countries like Australia, which restricts India's export growth.

Modified: 2025/12/04

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