Australia’s declining dairy industry is set to contract further than usual this year thanks to a combination of natural disasters, rising costs of production and lower than expected minimum farm-gate milk prices.
Advocates warn the low milk price offer may be the last straw for many farmers, especially the 1,900 – almost half of all dairy farmers in Australia – struggling with the financial and emotional toll of severe drought in Victoria and South Australia, or extreme flooding in New South Wales.
Opening milk prices of $8.40-$9.20 per kilogram of milk solids (MS) – the non-water components of milk such as milk fat and protein – released in June by processors – are slightly higher than 2024’s starting point, but lower than 2023. Farmers received an average of $9.79/kg MS for their milk in 2023-2024.
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Despite the emotional and financial turmoil in the fields, consumers are unlikely to notice much difference in the retail price of dairy products. Major supermarkets Coles, Woolworths and Aldi use milk as a loss leader, and set the price expectations. Any shortfalls in supply will be made up with imports from overseas or interstate where farm gate prices are lower.
The Australian Dairy Farmers president, Ben Bennett, who farms at Pomborneit in south-west Victoria, says prices below $9/kg are less than the cost of production and fail to recognise the impact of higher global markets, inflation, or the cost of responding to drought and a one-in-500-year flood.
Many farmers had already lost hundreds of thousands of dollars in 2024-2025, a figure Bennett expects to be dwarfed in the coming financial year as producers are forced to sell cattle to buy feed.
“Some dairy farmers just won’t be able to endure this latest blow and they’ll have to exit the industry,” Bennett says.
The Victorian Farmers Federation United Dairyfarmers of Victoria president, Bernie Free, has a dairy at drought-affected Warrnambool andtold Guardian Australia last monththat he was hand feeding – supplying silage and other fodder to his 650 friesians to make up for the lack of grass – more than he ever had in his 30 years on the land. He says $10/kg MS would be enough to cover increasing costs of production “if we didn’t have drought”.
“On my farm, and every other farm in western Victoria and South Australia, we don’t have any grass growing,” he says.
“We’re going to be short of grass fibre to feed our cows all the way through until the autumn break next year, and we’ve got 10 or 11 months of worrying about where we’re going to get feed for our cows.”
The Norco chair, Michael Jeffery, whose entire farm at Kempsey in northern NSW wasinundated by the May floods, is now spending $30,000 a week on hay to hand feed more than 500 cows and heifers.
He will use drones to try to sow seed into paddocks that are still too wet to drive on in a bid to get some pasture growing before spring, and faces a bill of “hundreds of thousands of dollars” to repair damage to laneways. Jeffery estimates the cost of the floods to his business at $1.1m.
Norco, which is a co-operative wholly owned by about 300 members on 190 farms in northern NSW and south-east Queensland, calculates its prices differently because it focuses on the fresh milk market. It is forecasting an average of 90c a litre, which equates to about $12.45/kg MS.
The company is also working on separate measures to help its flood-affected suppliers.
Jeffery says the opening figures from some major processors were misleading because they were weighted averages and “completely unachievable in reality”.
“Our headline price is an actual average based on supplier profile and a bit over half a cent better than our main competitors, assuming full quality,” he says.
“Given the recent commodity values, I agree [$9/kg] is lower than what would be expected in Victoria.”
The president of eastAUSmilk, Joe Bradley, says prices less than $9/kg were disappointing and unsustainable, showing the major processors and supermarkets undervalued milk.
Bradley milks 200 cows at Dayboro, north-west of Brisbane. “Farmers are saying to me: the processors keep telling us the price is good, demand is going up and this is as good as it gets,” he says.
“The price of hay has gone through the roof, and our costs keep going up, yet we don’t get a price increase … how the hell is that fair?”
Under the Dairy Code of Conduct, which took effect in 2020, processors are required to publish milk supply agreements and minimum prices for the next season – along with the reasons – on their websites by the first business day in June. Companies can adjust pricing during the season, announcing step-ups to pay a higher price when market conditions improve.
Rabobank senior dairy analyst Michael Harvey says opening prices were broadly in line with his expectations of a $9/kg minimum, published in the annual Australian Dairy Market Outlook released a week earlier.
This was on the back of a 25% rise in the Global Dairy Trade index during 2024-2025.
“More importantly, the milk actually doesn’t start coming in and being sold into the market until the spring peak,” he says.
“As the season progresses, if the market plays out the way we expect, there will be upside from here.”
Harvey says he understands the frustration of farmers, but companies need to find the right balance, given global uncertainty.
The number of registered dairy farms in Australiafellfrom 6,308 in 2014 to 3,889 in 2024, a drop of 38%. Over the same period, milk production declined from 9.421bn litres to 8.376bn litres.
In the biggest milk producing state, Victoria, 2,552 dairy farmers produced 5.297bn litres, more than 63% of the national total in 2023-2024.
Despite the gradual decline in production, dairy remains Australia’s third biggest rural industry by farm-gate value and exports, behind red meat and wheat, according to figures from Dairy Australia.
Sandra Godwin is a freelance journalist based in Swan Hill, Victoria
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