Agribusiness & Food

Dairy to endure stormy weather in 16/17

Agribusiness analyst Rabobank says Australia’s dairy exporters will face below-breakeven conditions in the 2016/17 season, but believes the industry is prepared to “ride out stormy weather”.

A recent report from the analyst said Australian dairy producers entered the current global price downturn “well prepared” with sufficient equity levels, putting them in a good position to endure the hard times ahead.

“Over recent years, many dairy producers have taken the opportunity of improved farm profitability to pay down debt rather than expand their business,” Rabobank senior dairy analyst Michael Harvey said.

“This focus on manageable debt levels has proved paramount to maintaining farm resilience in an ever-increasingly volatile climate.”

Harvey expects equity to be eroded during the downturn, and says producers will need to use the next upward price cycle to strengthen their business structures.

“This may see farmers adopt a business strategy focused around reducing debt and rebuilding equity, rather than chasing the profit margin in the upswing,” he said.

Harvey suggests producers adopt a flexible production system to ensure long-term resiliency.

“The rules of engagement have changed for Australian dairy and it is no longer enough to be a low-cost, pasture-based milk producer,” he said.

“Instead, there needs to be appropriate flexibility in the production system so costs can be scaled back when times get tough.”

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