Australia's Dairy Industry: An In-depth Analysis

Australia stands as a key 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 significant role in the international dairy supply chain. The country's processing capabilities can accommodate about 9.1 billion liters each year, effectively serving both domestic and international markets.

Milk Processing and Cheese Production

Australia places a strong emphasis on cheese production, yielding 365,000 tons annually, with forecasts predicting an increase to 435,000 tons by 2024. Additionally, the country produces 300,000 tons of milk powder and whey each year, primarily exporting these products to major markets such as the United States, European Union, China, and Southeast Asia.

Key Market Players and Export Activities

The Australian dairy landscape is dominated by major companies like Saputo Inc., Coles Group Limited, Beston Global Food Co., and Yili. Despite achieving a record-breaking dairy export value of $3.44 billion, farmers face challenges with stagnant farmgate prices ranging between $8.80 and $9.30 per kilogram of milk solids.

Recent Industry Developments

Recent developments include Saputo Inc.'s sale of two processing plants to Coles Group Limited and Beston's exploration of divestment opportunities. Coles has reduced cheese prices to enhance consumer accessibility. Changes at King Island Dairy and Beston's entry into administration have impacted 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. 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, 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%.

Resilience and Sustainability Initiatives

A new program has been launched to improve the resilience of dairy farms against prolonged droughts. This initiative focuses on proactive strategies for sustainable drought management, ensuring farm viability and consistent milk production. It is designed to empower dairy producers in Australia to withstand climate challenges, specifically prolonged drought events, by shifting focus from reactive relief measures to comprehensive, proactive preparation.

Fonterra's Australian Operations

Fonterra's Australian operations are transitioning away from its New Zealand cooperative structure. The transition involves careful management of supplier relationships and operational changes impacting farmgate pricing and milk collection logistics in Victoria and Tasmania.

Product Innovations and Market Changes

Eltham's cheese is featured in McDonald's new Big Arch burger, launched in Australia. The Big Arch burger in Australia includes three slices of cheddar cheese from Eltham, showcasing Fonterra's quality. Fonterra has shut down two Australian subsidiaries. The subsidiaries, Cottee Dairy Products and Australasian Dairy Ingredients, were involved in the 'Powdergate' scandal, which concerns illegal exports valued at $50 million.

Australia's Dairy Code of Conduct

Australia's recent legislative review has confirmed that the Dairy Code of Conduct is effective in ensuring fair pricing and contract transparency across the dairy supply chain. The latest review of Australia's Dairy Code of Conduct has affirmed its effectiveness in creating a balanced and transparent dairy industry. The review highlights a consensus within the industry that the Code remains 'fit for purpose' by improving the clarity of milk supply agreements through published standard forms. The Australian Competition and Consumer Commission (ACCC) will continue to oversee its enforcement.

Regulatory Scrutiny on Lactalis Acquisition

Australian authorities are closely examining the implications of Lactalis acquiring Fonterra's consumer business for local competition. The EU, which includes Australia, delayed the deforestation regulation affecting business certainty.

Victorian Dairy Farms

Victorian dairy farms have reported record silage harvests following a season of drought. In southern Victoria, dairy farmers have experienced a remarkable recovery following a prolonged drought, achieving record silage harvests. The improved conditions were attributed to substantial November rainfall, which restored soil moisture and pasture growth, allowing farmers to replenish depleted feed reserves.

Lactalis Acquisition

Lactalis has finalized its $3.4 billion acquisition of Fonterra's Australian operations. Australian dairy suppliers are assured that their representative council will maintain its influence and purpose. The acquisition, announced in August and approved by the Australian Competition and Consumer Commission, means that farmers will deliver milk to a new owner but will continue to interact with largely the same operational teams.

South Australia Legalizes Virtual Fencing

South Australia has become the last state in Australia to legalize virtual fencing for livestock. This advancement is expected to transform livestock management, offering benefits in emergency situations such as bushfires and floods by allowing farmers to move animals to safety without human intervention.

Investment by Gina Rinehart Boosts Western Australia's Dairy Industry

Bannister Downs Dairy in Western Australia has flourished under the financial backing of Gina Rinehart. Despite challenges in the broader dairy sector, the investment led to significant expansion and modernization.

Australia's Dairy Sector Challenges in EU Trade Negotiations

The NFF warns that a weak free trade agreement (FTA) with the European Union could expose the local dairy industry to unfair competition. Ben Bennett, President of Australian Dairy Farmers, highlighted the risk posed by the EU exporting more than 70,000 tonnes of subsidized dairy products into Australia annually. Experts caution that the benefits of rising global dairy prices will rely on stable production and maintaining competitive positioning against European, New Zealand, and Australian suppliers.

Australia's National Breeding Objective for Dairy Genetics

In December 2025, Australia enacted major changes to its National Breeding Objective, impacting dairy genetic evaluations. The updated system includes an enhanced genetic evaluation framework that aligns breeding value bases with contemporary production systems and economics.

For global dairy markets, including exporters in Australia, these trade tensions are significant. Australian dairy exporters are affected by the redirected trade flows due to new barriers for European dairy products in China.

Modified: 2026/01/14

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