Dairy imports 'likely' to grow despite steady domestic supply

In an interview with Stock & Land, Mr Harvey said this was the reality of Australia's place in the global dairy market.

"We are certainly seeing imports increase and that's just in the short term," he said.

"We've been a big importer of dairy products and ingredients for a long period of time but we have seen a bit of a spike more recently and it's coming through in a number of different products.

"There's a bit more bulk butter and cheese coming through into food service and processing and there's been a subtle lift in ingredient [imports].

"That's just part of the natural cycle - the supply chain is short of milk solids.

"We're exporting less and we're importing a bit more."

When asked if this trend would continue in the short to medium-term, Mr Harvey said "absolutely".

The Rabobank analyst also gave his outlook on Australian dairy exports.

He said the export sector has been "challenged in recent times".

"Export volumes have come down and a large part of that is because we have less milk to export but also demand in export markets has been quite sluggish," he said.

"Dairy consumers around the world have been battling with cost of living pressures.

"There's weakness coming through in demand but there's an export competitiveness issue as well where Australian milk is more expensive than some of our competitors.

"It's harder to win market share in those export markets."

Mr Harvey chaired a panel on the future of Australia's milk supply at the Australian Dairy Conference in Melbourne last week.

Speaking to Stock & Land after hearing from farmers and processor representatives at the conference, he said the discussion around the future of Australian milk supply was a "critical one".

"It's a good time to be having the discussion as things are pretty good on-farm but things aren't translating into growth," he said.

"Right now what you are seeing is some stabilisation in the milk pool and that's coming through in the more recent production numbers.

"That's natural - there's plenty of rain, plenty of feed and margins are good on farms."

However, Mr Harvey said the longer-term picture for milk supply was "really yet to be defined".

"We are likely to see ongoing consolidation at the farm gate which means the number of exits continues," he said.

"The important point we'd make there is that we would expect that rate of exit to normalise.

"We are coming out of a cycle where it was the perfect storm.

"There were labour issues for farmers that were wanting to invest and stay in the industry and it just made it hard to grow.

"There was a big exit into other enterprises, particularly beef, because the beef market was performing so well."

However, Mr Harvey said beef markets were now "not looking as attractive" and therefore, the rate of dairy exit has "stabilised".

"The labour market is still very tight but it's looking like it's improving," he said, adding that many dairy farmers were also investing in robot technology to insulate themselves from labour shortages.

He said the "normalisation" in the rate of dairy decline did not mean there could not be investment growth and this was due to milk supply confidence.

"I think there's always going to be peaks and troughs in the milk price but one thing that is quite evident here in Australia is that there is less volatility," he said.

"A lot of that comes down to the market mix - how much milk we've got, what we're producing and what's being sold.

"There is a lot less volatility in the farm gate milk price but we would never rule out risks around a reduction in the milk price."

Overall, he said when looking at the next 12 months, there was "confidence" that Australian farmers will see "elevated" milk prices.

"There is good competition for milk and the domestic market has been set at high prices for consumers, which is not great, but it provides that buffer," he said.