Drinking milk remains key in Australia's dairy sector

In a newly released industry report, Rabobank said the liquid ‘drinking’ milk market remains of key importance to Australia’s dairy sector, with improved domestic retail pricing and opportunities for further export growth.

In ‘Australia’s Drinking Milk Markets: from Loss Leader to Improving Performer’, Rabobank reports that the liquid milk category, which in recent years had struggled with a number of challenges, accounts for 30% of milk production in Australia’s dairy sector and generated more than $4 billion in annual revenue.

This is important for both revenue generation and supply chain efficiency, helping to support the Australian dairy value chain and lead to stable farmgate milk prices, according to the report.

“Drinking milk, being a staple product in the consumer basket, will remain a large and important category for Australian milk utilisation,” according to the Rabobank report.

With falling domestic consumption, however, Australia’s domestic drinking milk market is mature, but this is being offset by growing exports of liquid milk, according to Rabobank senior dairy analyst Michael Harvey, the report author.

According to Harvey, the market is experiencing an increase in consumer prices across the dairy aisle, led by drinking milk. This has been driven by the record-high farmgate milk prices and higher supply chain costs, along with a tight supply due to declining Australian milk production.

“An extended period of industry-related disruption and low margins is slowly coming to an end,” Harvey said.

Higher consumer prices for dairy products is welcome news for dairy farmers as it solidifies the end of frustrations over the discounting of drinking milk. It will also ensure higher and more stable returns to the market and mitigate the potential volatility in returns in other channels.

Harvey said domestic consumption of drinking milk was a significant market for Australia’s dairy industry, and the health and performance of the category still has a role to play in the industry’s profit.

According to Dairy Australia, Australians consumed more than 2.5 billion litres of drinking milk in 2021/2022, which was approximately 30% of the raw milk produced in Australia that year. The remainder went into manufacturing of dairy products and ingredients for domestic and export markets.

The report said Australia’s per capita consumption of drinking milk ranks among the highest in the world, behind Ireland, Finland and New Zealand.

“In 2021/22, Australian per capita consumption of milk stood at 93 litres per person for the year, which equals just over 250 millilitres per day,” Harvey said.

56% of all drinking milk sold in the country is full cream milk.

However, this market in Australia is “extremely mature” according to the report, and domestic consumption is trending lower as dietary habits shift, a trend that is expected to continue into the medium term.

Dairy Australia figures indicate domestic milk consumption peaked in 2012/13 at 106.7 litres per person and has since fallen by 13%. And in 2021/22, total drinking milk consumption in Australia contracted by 1.1% or 36 million litres.

According to Harvey, this is common in many westernised economies.

Export volumes of Australian liquid/drinking milk have also been growing, the report says, with the total volume exported increasing by more than 200 million litres annually over the past decade.