While demand from China and ASEAN countries for Australian milk continues to grow, export margins have been squeezed and could potentially tighten further, according to a recently-released industry report.
The report, Liquid milk exports to Asia – avoiding the crush, by agribusiness banking specialist Rabobank, says competition in Asian markets will remain fiercely competitive as both international and local brands fight for market share and consumer spend.
Report author, Rabobank senior dairy analyst Michael Harvey says the automatic premium that international brands had historically received was unlikely to be repeated.
“It wasn’t long ago that being an imported brand automatically provided a retail price premium but that is no longer the case,” Mr Harvey said.
“This has particular consequences for Australia and New Zealand given the previously alluring retail price premiums, combined with trade opportunities and relatively low capital outlays, which fuelled a period of significant investment in liquid milk processing capacity across Oceania.
“This increased capacity has been specifically geared towards Asia’s liquid milk markets, the short-term consequence of which has been a contribution to diminishing export margins.”
The flood of investment in the regions has resulted in capacity almost doubling across Australia and New Zealand, with additional investment potentially in the pipeline.
This region’s dairy exporters are also competing with their European counterparts, many of which have large-scale and highly efficient processing plants complemented by a growing milk supply.
“European processors have been more conservative in recent investments due to adequate existing infrastructure, but recent events have increased their capacity to export to Asian markets,” Mr Harvey said.
“They have unwound milk quotas at a time when they have been experiencing weaker trading conditions in some of their traditional export markets.
“In particular Russia, which has been absent since the trade ban of dairy products in 2014, and Africa, which has been battling economic headwinds, particularly in its oil economies.”
