Rabobank cuts loan rate
Rabobank New Zealand will reduce the variable base rate on its rural loans by 0.5%, effective from 16 October 2024.
It's recently released Australian Dairy Sector Outlook report notes that the overall trade profile for Australian dairy is in a period of transition, driven by factors including lower domestic milk production, an erosion of export competitiveness and more favourable domestic market returns impacting the product mix.
The report says Australia produced 8.129 billion litres of milk in 2022/23, marking not only the third consecutive year of decline in milk production but also Australia's lowest available supply of milk for manufacturing - products including cheese and milk powder - since the 1990s.
Report author RaboResearch senior dairy analyst Michael Harvey says the bank expects dairy imports to play a more significant role in Australia's domestic supply chain into the future as local milk production remains constrained and the industry further adjusts to accommodate these shortages.
"Since the most recent production high in 2020/21, more than 700 million litres have been lost from the supply chain, resulting in a chronic shortage of milk for manufacturing."
While the report says Australia has had a long history as an exporter of quality dairy products and as a key procurement region for international buyers, the country has been on a slow retreat from the global dairy export arena for some time, which Harvey says will create growth opportunities for dairy exporters around the globe, including New Zealand.
"For the calendar year 2023, Australian dairy export volumes were down double digits across most products with the largest declines in liquid milk (down 41%) and butter (down 52%).
"New Zealand already holds a dominant share of Australian dairy imports and is the largest supplier of butter and cheese into the Australian market, accounting for approximately 5% of total New Zealand dairy exports by value," he said.
However, despite the reduction in domestic milk production and export volumes, Australia remains a net exporter of dairy products in liquid milk equivalents and still ranks as the fifth-largest dairy exporter in the world with 4% of global trade.
While dairy imports have played a crucial role in the Australian supply chain for a long time, over the last decade the annual dairy import volume in liquid milk equivalent has doubled, with Australia importing more than 1.4 billion litres of dairy product in liquid milk equivalent (excluding caseins) in 2023.
Rabobank expects Australian dairy imports to grow even further over the medium term, driven not just by shrinking domestic milk production, but also the comparative cost advantage of imported product and a spike in demand for lower-budget products due to cost-of-living pressures.
Harvey said that a large proportion of the import mix is bulk and ingredients - particularly butter and skim milk powder - as domestic manufacturing of these products has declined.
"But as more imported products are appearing on retail market shelves, it looks clear that an ongoing shortage of milk solids will require Australian dairy companies to expand their dairy product and ingredient procuremtn capabilities over the medium-term, creating growth opportunities in certain products and ingredients for global dairy exporters.
"Given New Zealand's close proximity and strong existing trading relationship, Kiwi dairy exporters look well-placed to take advantage."
