War shadow hangs over bright dairy outlook
The dairy industry is paved green as it heads into a record breaking 2022-23 opening season — but there are two red warning lights blinking on the dash.
War is the biggest red light, with the invasion of Ukraine contributing to inflation and supply line fracturing.
Alongside hitting fuel supply hard, the reality of war in Europe has resulted in a lack of lecithin, an ingredient used as an instantising agent for powders in dairy processing.
Sunflower oil is a key source of lecithin, but more than two-thirds of the world’s sunflower oil is produced in Russian and Ukraine.
The other warning light is rising input costs — including fertiliser, chemicals, energy and fuel.
Urea is up to 182 per cent more expensive than it was last year, sitting at around $1300/tonne and still going upwards.
These two factors were detailed in Dairy Australia’s most recent Situation and Outlook report.
Four times a year Dairy Australia assesses the health of the dairy industry and delivers a prediction of what’s ahead.
“The invasion of Ukraine has caused widespread economic damage, while also fuelling inflation,” the report said.
“Combined with pre-existing supply chain disruptions and the lockdowns in China, these issues will impede significant economic recovery.”
The Greater China market continues to import more Australia dairy products than it was in 2021 and 2020, but the harsh lockdowns have experts worried.
On the positive side, competition for land, labour shortages, high beef prices and ongoing risk aversion are still working together to constrain the milk pool.
With farmers failing to increase milk supply, processors are paying more and more, leading to the record-breaking opening milk prices being seen right now.
Globally, New Zealand, Europe, the United Kingdom and United States are all tracking down due to poor weather and input costs.
In northern Victoria and southern NSW, farmers are enjoying a favourable season weather-wise and a well-timed autumn break — which is putting green feed in front of cows before temperatures drop.
Again, however, farmers are not increasing cow numbers and many are prioritising non-dairy investment such as beef or cropping ventures due to low labour costs, according to Dairy Australia.
The only exception to this behaviour was investment in feedpads and other similar intensive barn facilities.
Dairy Australia said the constrained spending would pay-off for those farmers if conditions became too wet.
DID YOU KNOW?
The European Union was set to submit a ‘sustainable farming proposal’ aimed at reducing carbon emissions. It would’ve significantly impacted agriculture and sparked several farmer protests. When Ukraine was invaded the ‘sustainable farming proposal’ was delayed and instead the EU committed to stronger food security.