According to Milk and Cream Processing Australia, an industry report by research firm IBISWorld, the next five years will be affected by domestic seasonal conditions, an expected recovery in world demand and economic health, and product innovation.
The report forecasts that domestic dairy product prices for the industry are expected to moderate over the next five years, while world prices are predicted to remain firm over the same period.
According to the report, growth in dairy demand will be driven by population growth and stronger world economic growth, including in key markets such as China and East Asia.
“Many export markets, such as China, have low per capita consumption levels relative to Western diets, leaving room for the industry to expand,” the report said.
The report also predicted that milk production is forecast to grow as dairy herds are rebuilt and milk yields increase, assuming a return to average seasonal conditions.
“Farmers are expected to increase their dairy herds in response to increased profitability due to higher prices, lower feed costs and increased efficiency,” it said.
The report added that yields per cow would increase due to improved weather conditions, ongoing improvements in farm management practices and new research into herd, pasture, breeding and fodder.
“Domestic demand for dairy products will depend on disposable income growth, population growth and consumer preferences. Australia’s population is set to grow at a marginal rate of 1.3 per cent annually over the next five years,” it said.
However, real disposable income is forecast to grow at a relatively strong rate as signs of the economic recovery become more pronounced, which will aid demand for high-margin dairy products such as flavoured milk and functional yoghurt, the report said.
According to the report, milk and cream processors are expected to introduce new products in line with consumer trends of health and convenience over the next five years.
“These include the addition of functional bacteria such as probiotics to traditional milk and yoghurt, the introduction of new and exotic milk and yoghurt flavours, and innovative packaging and promotions,” the report said.
“The outlook for domestic milk production is optimistic given a meaningful autumn season, which is critical to the spring pasture and feed grain crops,” the report said.