The declining dollar is delivering more than just extra competitive value to Australia's dairy exports - conditions are getting tougher for imports in our domestic market.
Imports, particularly cheap private label cheeses, have carved themselves increasing space in Australian supermarket aisles in the past five years, putting locally made product under relentless pricing pressure.
Our sliding exchange rate is now just under US68 cents, and likely to continue to dip further, providing an inconvenient cost challenge to food importers.
Although Australia still rates as a major global dairy trader in its own right, selling 35 per cent of production overseas, our imports from New Zealand, Europe and the US total about 330,000 tonnes a year.
That's about double the tonnages imported back in 2012-13 and more than three times as much as Australia was absorbing from overseas at the start of the century.
With the dollar trending down from US74c a year ago to lows around US67.3 in the past week, importers and retailers are reassessing their options.
Undoubtedly a depreciating currency makes domestic production more competitive with imports
Even the NZ dollar has held relatively robust against both the Australian the US currencies in the past year, eroding the margins on NZ product landing her.
However, the alternatives are not great for retailers and food companies looking to source discount dairy products locally rather than paying pricier import costs.
Australian milk production has dived in the past few years thanks to drought and the milk market chaos which accompanied the collapse of big processor, Murray Goulburn.
With a smaller milk supply pool to draw on, local dairy processors have focussed on making the most from servicing high value domestic or export buyers, especially as our depreciating dollar makes export sales even more valuable.
"The reality is we benefit a lot from a lower dollar, even though we might not be producing as much milk or exporting as much of some products as we used to," said Dairy Australia's trade and industry strategy manager, Charles McElhone.
"Processors are taking higher value routes and becoming more selective about where they place products and the markets they choose to chase.
"And, undoubtedly a depreciating currency makes domestic production more competitive with imports."
Dairy imports are not always obvious to shoppers, but they are found a big range of end uses in retailing, food processing and even the livestock sector.
A sizeable portion of Australian imports end up packed and wrapped as house brand cheese and butter lines for major supermarkets Coles, Woolworths and Aldi, or selling under prominent foreign brands as alternatives to local cheddar and specialty cheese lines.
Bulk cheese is also used in pizza toppings and other food service products, while whole milk powder, cheese and butter imports go into in many bakery lines.
Imported powder and whey concentrate are ingredients in many dairy-based nutritional formula products, and in pet and livestock feeds and milk replacer lines for young animals.
"We've become a significant importer to prop up our local production shortfall," Mr McElhone said.
Changing export focus
Rising global dairy commodity prices and our shrinking national milk production - down by about 8.5pc to 8.5 billion litres in 2018-19 - meant Australian processors were paying less interest in traditional bulk milk powder, bulk cheese and butter markets.
"They may still do a lot of cheese, but we're seeing our processors targeting more select markets - less into the Middle East and more focus on specific products for retailers in Japan, China or South East Asia," he said.
In the short term we can see some good opportunity in filling the gap in China
The lower dollar would also be increasingly valuable in helping Australia's $3 billion a year dairy export trade fend off competition with the US as its tariff war with China forced American dairy producers to seek out new buyers for product previously shipped to Chinese consumers.
"In the short term we can see some good opportunity in filling the gap in China," he said.
"A more competitive dollar is giving us more chances to get product into China and other opportunistic market openings.
"However, over time the US will have to open up new markets and there will be a lot of disruption to global trade."
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