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Covering the Goulburn and Murray valleys

Dairy down but not out

Dairy prices take a hit in changing global climate, with Russia sanctions high on agenda for processors, government and farmers.

ROB HENSON August 13, 2014 3:36am

Dairy prices have fallen but the industry is not crying over spilt profits just yet, according to processors and industry analysts.

The Fonterra Global Dairy Trade has declined sharply by more than 20 per cent in the past month.

Rabobank senior analyst Michael Harvey said the majority of product sold at GDT auctions was New Zealand product and predicted the fall in Australia’s fortunes would not be as drastic.

Mr Harvey said good growing conditions, especially in Europe and New Zealand, had put downward pressure on prices.

‘‘Strong milk production growth, that’s what’s been putting pressure on the market,’’ he said.

In the wake of season 2013-14, the milk price was about $7/kg milk solids, inflated by strong demand from China.

‘‘The reality was we were always going to come off the record prices,’’ Mr Harvey said.

He said the current four-year forecasts of between $6.10 and $6.30 had some potential to be reduced due to the risks associated with Russian sanctions — currently the world’s second largest dairy importer.

Russia has cut Australian dairy products for a year, along with beef, pork, fruit and vegetable produce, fish and poultry.

Mr Harvey said this could further oversupply global markets, particularly in cheese.

‘‘The trade between Australia and Russia is not huge, rather it’s the knock-on effect we’re all worried about.

‘‘Russia imports a lot of cheese, mostly from Europe, and if they impose this ban, a lot of European cheeses will be diverted to other products or other markets and that’s a real threat to Australia as a large exporter of cheese.’’

He said there was uncertainty on whether Russia would impose the ban for an entire year, potentially creating food shortages in the country.

‘‘We think things will remain weak the rest of the year, then see signs of recovery early next year.’’

Murray Goulburn managing director Gary Helou said Russia was an important market for the company with almost $95million in business last financial year, particularly in butter.

‘‘The trade sanctions announced by the Russian Government on food exports from Australia will have some impact on our ability to maximise returns as we place this product into other markets,’’ Mr Helou said.

‘‘Given the importance of Russia as an importer of dairy products, particularly from the EU, we will monitor the impact of the sanctions on global dairy market settings.’’

Australian Dairy Industry Council chair Noel Campbell said Russia was an important market for the Australian dairy industry.

VFF president Peter Tuohey said he trusted the Federal Government to deliver a free trade agreement with China with reduced tariff barriers.

For example, China’s tariff for Australian milk powders is 10 to 15 per cent while New Zealand is charged 4.9 per cent.

‘‘What’s happened in Russia, just highlights the need for us to get strong FTAs in place that open up more markets for Australian exports, such as China,’’ Mr Tuohey said.

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