The Australian dairy industry has grown from humble beginnings into a leading national industry that injects close to A$13 billion into Australia’s economy. This major industry has adopted the latest technology to produce whole milk and dairy products in significant qualities.
Australia is the world’s third-largest exporter of dairy products, exporting more than 50% of its production with Victoria producing the most milk for export. According to the report released by Dairy Global, Australia’s dairy exports were worth A$3.2 billion in 2019 and exports have been steadily increasing over the past five years.
Australia exports over 34% of its dairy exports to China. According to Statista.com, exports to China were worth around A$938 million in 2021, making China the leading export destination for Australian dairy products. China’s milk production costs have been at a historic high owing to the high costs of soybeans and corn used to feed cows in intensive animal production systems. This high cost of domestic milk increases the competitiveness of dairy imports compared to domestic manufacturing in China.
Apart from China, Australia’s other major export destinations include Indonesia, Singapore, Philippines and Japan.
The Australian dairy export industry was in a strong position heading into the COVID-19 pandemic, with a weakening Australian dollar providing some insulation from international market pressures. However, the pandemic negatively impacted the global economy and the Australian dairy export industry was not spared.
Restrictions implemented by governments to curb the spread of the pandemic created a negative impact on dairy export supply chains. For example, China adopted strict quarantine measures to curb the spread of COVID-19, which created multiple supply chain disruptions. The lockdown also meant a labour shortage across major dairy farms, resulting in less production and exportation of Australian milk products.
The closure of China’s ports amplified this supply chain disruption, causing increased shipping container rates and understaffing in the ports, impacting not only Chinese importers but also adding logistical challenges for Australian exporters. Specifically, it became difficult for Australian exporters to access packaging materials produced in China, secure shipping slots and organise ocean freight containers.
Unfortunately, the disruption in China’s ports continues today. Specifically, China’s current zero-COVID strategy has resulted in staff shortages and the shutdown of their largest port in Shanghai. In fact, Shanghai is one of the world’s largest container ports and so the impact will be felt globally. The volume of containers processed at China’s biggest ports have hit a two-year low, dipping by 6% in May 2022, vs a year earlier.
However, the pandemic did also benefit Australian exporters. The widespread economic impacts of the pandemic weakened the Australian dollar, granting them increased selling power.
Supply chain disruption and global travel bans negatively impacted disposable income around the world. This resulted in cases of milk dumping in the United States and the European Union due to increased milk production and decreased domestic demand. Fortunately, in Australia, this didn’t happen. However, the retail sector in Australia, which tends to account for a larger share of national dairy consumption, was still heavily impacted.
As China’s ports have resumed operations, we are slowly moving towards normalised supply chain conditions with several sea cargo routes reinstated. However, due to the backlog in distribution channels, there will still be some delays securing shipping slots and booking shipping containers.
The Australian government is taking the impact of COVID-19 extremely seriously. In 2020, the Australian government promised to invest more than A$15 million to expand the dairy industry. The federal government, in conjunction with the various state governments and Dairy Australia, have committed to expanding dairy exports across Europe and Asia.
Adopting robotic milking systems in Australia has increased milk production in 2021-2022. Though this system is not new, the adoption of new technology on Australian farms has been slow until recently. The robotic milking system has proved labour efficient, improved animal welfare and increased flexibility for small-owner operated farms.
Over the duration of the pandemic, dairy exports from Australia to China have set new record highs. In 2020, Australia exported A$716 million of dairy products to China, accounting for around 28% of its dairy exports. This grew again in 2021 and exceeded the 2020 record. From January 2021 to October 2021, Australia made close to A$842 million from dairy products exported to China, a 45% increase from the previous year and 84% above the five-year average.
Specifically, the primary dairy product that Australia exports to China is skim milk powder, accounting for 38 % of total Australian dairy exports. In 2021 alone, A$324 million in skim milk powder was exported to China, roughly an 86% increase from the previous year. Skim milk powder continues to be the primary driver in the growth of dairy exports. As international markets become more competitive, Australia will likely export higher-value dairy products.
The COVID-19 pandemic has greatly impacted Australian dairy exports and continues to do so. The long-term impacts of the coronavirus pandemic on Australian dairy exports will take time to become fully apparent. High logical costs and shipping delays are still predicted to persist into 2023, reducing Australia’s export capabilities. Whilst global industry experts predict a slow recovery of the industry, there is no indication when the global situation will return to normal levels. Experts advise that the actual impact of the pandemic will depend on the duration and magnitude of the current pandemic, the effectiveness of the mitigation measures taken, and future economic conditions.
On the bright side, some initiatives introduced by the Australian government have started to restore confidence in the dairy industry, putting them back on the road to profitability. They include the Dairy Code of Conduct and the Australian Dairy Plan. The Dairy Code of Conduct will improve transparency and trading arrangements between farmers and processors, while the Australian Dairy Plan will spear-head key initiatives to create a profitable Australian dairy export industry.
Australian dairy exporters are identifying every opportunity to streamline and optimise their export management processes, and ImpexDocs has been helping them to achieve a higher level of excellence. With ImpexDocs software solutions, dairy exporters have been able to improve productivity by 80%, and with ImpexDocs Services solutions, dairy exporters have been able to save costs in the range of 25% to 40%. Contact ImpexDocs for more information to help explore if your organisation can benefit similarly with ImpexDocs like your peers have.