On The Land
6 March, 2025
Aussie milk sector focus of report
THE cost of producing milk in Australia continues to compare favourably with other dairy-exporting regions despite a structural lift in global milk production costs across the past five years, according to a new report by agribusiness banking specialist Rabobank.
In the report, Rabobank says dairy farmers in many dairy-exporting regions have felt the pressure of increasingly higher milk production costs over recent years with the average total cost for milk production across eight major exporting regions (Argentina, Australia, China, Ireland, New Zealand, the Netherlands, California and the Upper Midwest of the US) increasing by around US6c/litre from 2019 to 2024 (up by 14%), with over 70% of the increase occurring since 2021.
Australia, though, was still one of the lowest-cost producers in 2024, the report said, second only to New Zealand, despite labour costs in Australia increasing significantly over the past five years.
Australia has also been among the regions – along with New Zealand and the Netherlands – generating the best gross milk price margins since 2019.
Report author, RaboResearch senior agricultural analyst Emma Higgins said that globally, dairy production cost increases had been broad-based.
“The majority of the cost pressure has been on-farm working expenses rather than other ancillary costs, such as serving debt, taxes and depreciation,” she said.
“Feed and fertiliser cost increases at the farmgate resulted from inclement weather, the fallout of the Ukraine war, rising energy prices, trade disruptions, elevated shipping costs and broader supply chain disruptions.
“This coincided with monetary policy cycles shifting in response to Covid-induced inflation. Interest rates lifted rapidly, increasing the cost of servicing new and existing debt, alongside the resulting general overhead cost inflation.
“At the same time, labour costs moved structurally higher in response to either a combination of policy settings or staffing shortages in most producing regions.”
The report says milk production costs lifted across the eight key exporting regions in 2021-2022, and remained elevated through 2023 until 2024, when all areas experienced relief, narrowing the cost band back to 2019 levels.
“Feed expenses have been the largest culprit in cost increases, with average feed bills across the eight regions rising 19% from 2019 to 2024,” Ms Higgins said.
“Feed bills started to pull back due to yield improvement and good weather in 2024, while fertiliser costs have also retreated as supply remains ample for demand. Interest rates are declining in many regions as the easing cycle for monetary policy begins.”
Ms Higgins said key cost categories varied by region.
“The proportion of feed costs as a percentage of overall costs is generally lower for extensive and quasi pasture-based feeding systems like Australia, New Zealand, the Netherlands and Ireland,” she said.
“In contrast, feed bills for more intensive farming systems, like those in China and the US, tend to make up a higher proportion of overall costs with this largely down to greater volumes of imported feed.”
Of the eight regions assessed, the report says, labour cost increases have been the most significant in Australia across the last five years – jumping by over 50% in local currency since 2021 – while interest rate pressures have been felt the most by New Zealand, Australian and Argentinian producers.
The report says Australia and New Zealand have competed neck and neck with each other over the past six years to hold the title of lowest-cost producer, in US dollar terms, among the eight assessed regions.
“New Zealand is currently in the lead, having increased its cost advantage to USc5/litre in 2024 (up from USc2/litre in 2023) as Australia has grappled with higher labour costs,” Ms Higgins said.
Ms Higgins said the dairy sector globally had experienced significant price and cost volatility over the past decade.
“And it is fair to say that will not change in the future, as the geopolitical environment becomes more unstable, giving rise to the risk of higher inflationary settings, weaker economic growth, climate variability and a potential decline in international trade,” she said.
“Continued cost structure management, relative to milk output, will be required to maintain dairy farmers’ economic resilience in a potentially turbulent business operating environment – something Australian and New Zealand dairy farmers have demonstrated in previous commodity price down cycles.”
Ms Higgins said RaboResearch anticipated a variety of implications for dairy value chains will likely exist in the years ahead.
“These include a volatile operating environment and increased regulatory pressures which will raise the complexity of dairy farming businesses, consolidation and rationalisation of dairy industries in certain regions, and a need for dairy producers to optimise dairy cow nutrition and increase focus on genetics and consideration of input use,” she said.
“Ultimately, dairy producers will need to maintain strong milk margins to fund such productivity improvements within an increasingly-complex business environment.
“As such, dairy exporters and traders will require a stronger understanding of supply dynamics and profitability drivers for dairy farmers.”
