Tasmania’s dairy industry – On the moooooooove
The Tasmanian dairy industry is the state's largest rural industry, with agriculture overall contributing around a third of the state's private sector income and providing around 20% of jobs. It is estimated that farm gate revenue for 2013-14 will be $400 million, approaching one third of the total value of Tasmanian's agricultural commodities. Tasmanian's 437 dairy farms will produce approximately 775 million litres of milk, just short of the record achieved in 2011-12, which represents around eight percent of national production.
Tasmanian domestic consumption accounts for only ten per cent of annual milk production, resulting in the industry being export oriented with four major processors delivering cheese, butter, yoghurt and milk powders through established supply chains. Over the last decade there has been an emergence of smaller farm based and specialty processors who have been successful in establishing niche value added products in local and interstate markets.
Recent investment by processors has seen processing capacity expand to 1,150 million litres per annum. This has been a tremendous vote of confidence in Tasmania's ability to produce high quality cost competitive milk into the future however creates some obvious challenges. The Tasmanian Dairy Industry Strategic Plan 2011–2015 estimates that milk production next year will be 860 million litres (up 28% since 2010), leaving scope for a further 290 million litres before existing capacity becomes fully utilised. Despite overall excess processing capacity, managing the spring-peak remains a key industry challenge and could result in further investment in processing capacity.
Dairy farming is a complex business with biological constraints enforcing longer leads for growth than some other agricultural industries, whether for expansion of existing farms or establishment of new farms. Industry commenters suggest there is scope to increase production by some 350 million litres in the next five years. So where will the additional milk come from? Farm numbers are not expected to change materially (published estimates are 430 farms), so the answer lies in productivity gains; more milk per cow and more milk per farm:
- An additional 150 million litres per annum through increased carrying capacity and / or expanded area of dairy farm land supporting an incremental 29,500 cows
- An additional 200 million litres per annum from an incremental 38,000 cows brought into production.
The overall investment requirement to achieve the additional 350 million litres per annum could also benefit employment, the community and regional economies:
- In total, an estimated additional 67,500 cows (the current herd numbers around 150,000 cows)
- On-farm investment of $600 million, including around $100 million for cows
- An increased gross value of farm milk income of $140 million per year
- 550 new jobs across the dairy industry, of which more than 80% would be on-farm
- New dairy service opportunities for adjacent sectors and the broader dairy value chain, including expansion in agistment, heifer rearing and fodder production sectors
- An additional 27,000 hectares committed to dairy including areas surrounding the Midlands Irrigation Scheme, for example.
In response, DairyTas has worked with the processors, industry partners and State and Commonwealth governments to develop the Into Dairy project. The project is a three year $1.7 million program of initiatives aimed at assisting the industry to meet that target, and building existing industry programs.
The project provides financial support to dairy farmers wishing to grow (through the Planning for Growth Program) and to Tasmanian landowners wanting to test the feasibility of establishing a new dairy (through Planning for Conversion Program) with the completion of a dairy conversion plan. Skills attraction will involve initiatives to develop local skills and also to attract experienced managers, sharefarmers and staff to Tasmania. More information on the Into Dairy project, its major initiatives and assistance program can be found at Into Dairy.
Word on the investment opportunities in the Tasmania Dairy industry is out and fund managers, corporate and private investors are showing increasing interest. One of the main portals for industry and investor information is the Into Dairy website Into Dairy.
Tasmania is an attractive place to investment in dairy farming due to:
- Established markets for selling Tasmanian dairy products into the world's two fastest growing dairy markets – China and India
- In an international context, Australia has an enviable reputation in food safety, stable political environment and clean, green reputation
- Competitive dairy production systems based on low-cost pasture and management systems
- Tasmania has adequate natural resources to support the proposed growth of 350 million per annum
- Expanding irrigation infrastructure – the Tasmanian and Commonwealth Governments have committed significant funds to major irrigation expansion to provide cost competitive, high surety water
- A history of innovation adopting technology, investment and increasing scale has resulted in Tasmania achieving an average annual rate of growth of almost three per cent over the last decade. Tasmania is Australia's fastest growing dairy sector.
So, there is much to celebrate and look forward to in the Tasmanian dairy industry. We are pleased to be part of the story.
For more information on this article, please contact Steven Hernyk (a business advisory specialist and partner of the firm for 15 years who is now consulting to the firm on a full-time basis), or our Tasmania agribusiness team.
Tel +61 3 6337 7060
Tel +61 3 6337 7032
Tel +61 3 6237 7630
Tel +61 3 6237 7065
We also acknowledge the assistance of DairyTas in the compilation of this article.