The dairy industry makes an important contribution to the Australian economy. In 2016–17 it accounted for around 6 per cent ($3.7 billion) of the gross value of agricultural production and around 6 per cent ($3.0 billion) of agricultural export income.
The results below are for farms included in the Australian Dairy Industry Survey (ADIS). The ADIS is funded by the Department of Agriculture and Water Resources. Data are provided at national and regional scales, with regions based on those used by Dairy Australia.
Frederick Litchfield, Aruni Weragoda and Dale Ashton
The major influence on the financial performance of dairy farms in 2018–19 is drought in much of south-eastern Australia. Average farm cash income is projected to decline by around 42 per cent in 2018–19 to $93,000 per farm (Table 1).
Lower crop production is contributing to higher prices for fodder and feed-grains. The drought has also reduced the availability of pasture on dairy farms in drought-affected regions, increasing expenditure on purchased feed. Dairy farmers in the Murray region have also been faced with higher water prices because of increased competition for scarce supplies. Overall, slightly higher milk prices are expected to be offset by decreased average milk production per farm and increased expenditure on fodder.
At the national level, the effect of the current drought on farm cash income is not expected to be as severe as previous droughts for dairy farms (Figure 1).
p Preliminary estimate. y Provisional estimate. a Excluding capital appreciation.
Source: ABARES Australian Dairy Industry Survey
Farm cash income in 2018–19 is projected to be 9 per cent below the median since 1989–90 in real terms. The fall in farm cash income in other major drought years was more pronounced for dairy farms, such as in 2006–07 which was 71 per cent below the median since 1989–90.
Figure 2 shows that for Australian dairy farms the farm cash income projected in 2018–19 is expected to be within the middle 50 per cent of years. However, the most drought affected regions—Subtropical, New South Wales and Murray—are in the worst 25 per cent of years.
Farm business profit is a measure of long-term profitability. It accounts for capital depreciation, payments for family labour and changes in inventories of livestock, fodder and grain held on farm.
At the national level, farm business profit increased significantly from an average of –$8,230 per farm in 2016–17 to $92,700 per farm in 2017–18. In 2018–19, farm business profit is projected to decline significantly to –$55,000 per farm.
Over the 10 years to 2017–18 the proportion of dairy farms recording negative farm business profit averaged 48 per cent a year. In 2018–19, the proportion of farms with negative farm business profit is projected to be around 66 per cent (Figure 3).
Negative farm business profit means a farm has not covered the costs of unpaid family labour or set aside funds to replace depreciating farm assets. Many farms occasionally record negative farm business profits when their income fluctuates. However, ongoing low or negative profit affects long-term viability because farms have reduced capacity to invest in newer and more efficient technologies.
On average 15 per cent of dairy farms recording negative farm business profit in any given year from 2000–01 to 2017–18 have recorded a positive profit in the following year.
At the national level, total cash receipts for dairy farms increased by around 17 per cent in 2017–18, on average, as a result of higher milk production and prices. The changes in average milk prices received varied across the different dairy production regions, ranging from an increase of 20 per cent in Tasmania to a decline of 2 per cent in Western Australia. Milk yields per cow were higher in all regions except New South Wales and Western Victoria.
At the national level, average total cash receipts are projected to decline by 4 per cent in 2018–19 to around $801,000 per farm (Table 1), largely as a result of decreased milk production in most regions.
Dry conditions across several regions pushed expenditure on key inputs higher in 2017–18. Average total cash costs for Australian dairy farms increased by around 9 per cent to $674,000 per farm (Table 1). This increase was mainly a result of increased expenditure on purchased feed as a result of higher feed grain prices and increased demand due to dry seasonal conditions. Hired labour, fertiliser and repairs and maintenance also increased in 2017–18. In 2018–19, average total cash costs are projected to increase by a further 5 per cent mainly as a result of increased expenditure on feed.
From 2000–01 to 2018–19 expenditure on fodder was the largest component of total cash costs, accounting for 30 per cent over the period (Figure 4). Interest, repairs and maintenance, fertiliser and hired labour were the next largest components of total cash costs from 2000–01 to 2018–19.
A majority of Australian dairy farmers supplement pasture-based production by feeding grains, concentrates and by-products to cattle in order to increase milk yield per cow. The use of grains and concentrates as supplement feeding therefore has become an increasingly large component of dairy farm inputs in recent decades. Increased reliance on supplementary feeding has resulted in increased exposure of dairy farmers to unfavourable seasonal conditions and changes in the prices of purchased feed (hay and feed grains).
The financial performance of dairy farms in 2017–18 and 2018–19 varied across the regions, reflecting differences in exposure to drought (Figure 5). A majority of dairy farmers in the Subtropical, New South Wales, Murray and Gippsland regions reported below average or drought seasonal conditions in 2017–18 and 2018–19.
Dairy farms in the Subtropical region have faced an extended period of drought and below average seasonal conditions. After reaching a peak in 2016–17, farm incomes in the Subtropical region declined in 2017–18 and 2018–19 (Figure 6). Reduced milk production because of fewer cows milked, combined with higher fodder costs, were the main reasons for lower incomes.
New South Wales had fewer dairy farmers reporting below average seasonal conditions in 2018–19 compared with 2017–18. This was mainly because of better rainfall in the North Coast and Hunter areas. Nevertheless, farm income for New South Wales dairy farms is projected to fall substantially in 2018–19. Overall milk production for the region is expected to be lower and fodder costs significantly higher.
Seasonal conditions worsened in the Murray region in 2018–19. Reduced milk production and higher costs for fodder and irrigation water is projected to contribute to Murray dairy farms recording their lowest average farm cash income in over 20 years. Average farm cash income in the Gippsland region is projected to increase slightly in 2018–19 because many dairy farms that had access to irrigated pastures were not as affected by higher fodder costs as other regions.
The proportion of Western Victorian dairy farms reporting below average to dry seasonal conditions increased in 2018–19. Average farm cash income in the Western Victoria region is expected to fall by around 43 per cent in 2018–19 as a consequence of reduced milk production and markedly higher costs for purchased feed.
Dairy farmers in South Australia are projected to record a decline in average farm cash income (by 24 per cent) in 2018–19. Costs are expected to increase in 2018–19 more than offsetting a small increase in milk receipts.
On average, farm cash income in Western Australia is projected to decline by 28 per cent in 2018–19. Milk production is projected to be relatively unchanged, while expenditure on purchased feed is projected to increase because of higher fodder prices driven by demand in eastern states.
Tasmania was the opposite of most other dairy regions. Good seasonal conditions and less dependence on purchased feed is projected to contribute to increased milk production and higher average farm cash income in 2018–19.
From 2016–17 to 2017–18 the average rate of return (excluding capital appreciation) of Australian dairy farms increased from 1.3 per cent to 3.1 per cent (Figure 7). The average rate of return is projected to decline to around 0.2 per cent in 2018–19, well below the long-term average.
The performance of individual dairy farms varied widely in 2017–18 and 2018–19 (Figure 8). In 2017–18, around 17 per cent of dairy farms recorded a negative rate of return (excluding capital appreciation) and 41 per cent recorded a rate of return between zero and 5 per cent. The remaining 42 per cent of dairy farms recorded a rate of return above 5 per cent.
In 2018–19, 44 per cent of dairy farms are projected to have a negative rate of return. An estimated 46 per cent of dairy farms are projected to have a rate of return between zero and 5 per cent and the remaining 10 per cent are projected to have a rate of return above 5 per cent.
The long-term performance of farm businesses is determined by the level and variability of profits. Variations in the rate of return reflect changes over time in average seasonal conditions, commodity prices and the cost of farm inputs recorded in each region. Individual farms are likely to have experienced different variations in the rate of return over the period. These are a result of farm-specific factors such as seasonal conditions, prices received, enterprise mix and the skills of the manager.
Between 2000–01 and 2018–19 the annual average rate of return (excluding capital appreciation) for Australian dairy farms was positive in all years except the drought years of 2002–03 and 2006–07. However, average rates of return by region vary.
Dairy farmers in Western Australia recorded the lowest variation in the average annual rate of return over the period while the Murray region had the greatest overall variation in the rate of return (Figure 9).
James Frilay and Dale Ashton
Debt is an important source of funds for farm investment and ongoing working capital for many dairy farms. At the national level, from 2000–01 to 2015–16 average debt of dairy farms trended upwards in real terms, mainly resulting from an increase in average farm size (Figure 10). Average debt of dairy farms decreased by around 3 per cent in 2016–17 and is projected to decrease an additional 4 per cent in 2017–18 to average around $905,000 per farm.
In ABARES farm surveys, debt is recorded by its main purpose. However, because some loans cover a range of purposes, estimates of debt by main purpose provide a guide only.
Over the 3 years to 2016–17 land purchases accounted for the largest proportion of dairy farm debt, around 44 per cent on average (Figure 11). Ongoing working capital accounted for 32 per cent of average total debt.
Reconstructed debt increased by around 60 per cent in 2016–17, whereas debt for land purchases decreased by around 12 per cent and working capital debt decreased by 9 per cent.
Since the mid-2000s average debt per dairy farm has increased at a faster rate than farm equity because debt levels have increased with increased average herd size and milk production (Martin, Shafron & Phillips 2017). The average equity ratio of dairy farms at the national level declined from 85 per cent in 2004–05 to an estimated 80 per cent in 2016–17. This was a consequence of declining land values and high levels of new investment on large dairy operations in some regions, mostly in Tasmania, Western Victoria and South Australia.
An estimated 27 per cent of dairy farms have an equity ratio greater than 90 per cent. On average these farms are relatively small. A further 52 per cent of farms have an equity ratio of 70 to 90 per cent. The remaining 22 per cent of dairy farms have an equity ratio less than 70 per cent. These are relatively large farms with higher than average milk production (Table 2).
Source: ABARES Australian Dairy Industry Survey
The long-term viability of a farm is affected by its capacity to service debt. The servicing of debt consists of making interest payments and paying down the principal. The proportion of farm receipts spent on interest payments is a useful indicator of short-term capacity to service debt.
From 2000–01 to 2016–17 the proportion of farm receipts needed to fund interest payments fluctuated around an average of 8 per cent. The ratio of interest paid to total cash receipts for 2017–18 is projected to be around 6 per cent (Figure 12). Reduced interest rates, increased cash receipts and a reduction in total debt have all contributed to the decrease in the ratio of interest paid to total cash receipts.
At the national level, in 2016–17 around 47 per cent of dairy farms reduced their average total debt (Figure 13). An estimated 40 per cent of dairy farms increased their debt on average in 2016–17. A further 7 per cent of farms had no debt at 1 July 2016 and 30 June 2017. The remaining 6 per cent of farms had no change in debt.
Debt and equity on dairy farms varied significantly by region. Dairy farms in Tasmania recorded the highest farm business debt on average. This was a result of the relatively high proportion of large farms and recent expansion in dairy production in that region (Figure 14).
From 2014–15 to 2016–17 land purchase debt accounted for the largest share of average debt of dairy farms in most regions, followed by ongoing working capital debt.
The lowest average equity ratios were recorded in Tasmania, reflecting rapid expansion in the industry since the mid-2000s. Since 2010–11 equity ratios in Tasmania have trended upwards (Figure 15).
Table 3 shows the distribution of dairy farms by debt and equity ratio at 30 June 2017. An estimated 7 per cent of all dairy farms in Australia held no debt. A further 6 per cent of farms held less than $100,000 in debt. An estimated 32 per cent of dairy farms held debt in excess of $1 million. An estimated 27 per cent of dairy farms had an equity ratio of more than 90 per cent in 2016–17 and 22 per cent had an equity ratio of less than 70 per cent.
Note: Row and column totals may not sum to 100 due to rounding.
Source: ABARES Australian Dairy Industry Survey
From 2000–01 to 2016–17 the gross value of Australian dairy production decreased by 16 per cent in real terms to an estimated $3.7 billion. Over the same period the number of dairy farms declined by 42 per cent and, consequently, the gross value of production per farm increased.
Investment in farm capital is important for the ongoing development of the Australian dairy industry. New and more efficient technologies are important for farm productivity, and investments in land, fixed improvements, and plant and equipment are key drivers of dairy farmers’ capacity to generate farm outputs.
The total value of capital for Australian dairy farms increased by 41 per cent in real terms from 2000–01 to 2016–17, although the number of dairy farms declined (Figure 16). On a per farm basis, total capital increased by 142 per cent to around $4.8 million per farm in 2016–17, largely because of increasing average farm sizes and appreciation in land values.
Land accounted for an average of 75 per cent of total capital per farm from 2012–13 to 2016–17 (Figure 17). Livestock accounted for a further 15 per cent of total capital, and plant and equipment accounted for about 10 per cent.
Source: ABARES Australian Dairy Industry Survey
ABARES uses two rates of return to farm capital—rate of return excluding capital appreciation and rate of return including capital appreciation. Rate of return is defined as farm profit expressed as a percentage of total capital. Because land is the largest component of total farm capital, it plays a key role in determining changes to total farm returns over the medium to longer term.
Figure 18 shows the average value of land and fixed improvements per hectare. In real terms, the average annual return from land appreciation from 2000–01 to 2016–17 was 4.3 per cent per year. From 1990–91 to 1999–2000 the average annual return from land appreciation was negative, at –1.6 per cent per year before stronger demand for farm land led to sharp increases in land values. From 2000–01 to 2006–07 the average annual return from land appreciation was 12.1 per cent per year before declining to an average of –1.8 per cent per year from 2007–08 to 2016–17.
Most farmers make new investments each year to add to the existing capital stock or to replace capital items that have reached the end of their useful life. Farm investments are usually made with longer-term outcomes in mind and based on expected returns over the life of the investment.
On average, 59 per cent of dairy farms each year made additions to their total capital over the 10 years to 2015–16 (Figure 19). The average amount invested each year by those making capital additions fluctuated around an average of $214,000, broadly in line with movements in farm cash incomes.
In 2016–17 an estimated 69 per cent of dairy farms made capital additions at an average of $133,000 per farm.
Figure 20 shows the average proportion of dairy farmers that made capital additions each year from 2012–13 to 2016–17 and the average capital addition in three categories—land purchases, plant and equipment, and buildings and structures. Land is the biggest component of capital additions each year, although only 11 per cent of dairy farmers bought land each year on average between 2012–13 and 2016–17. Average expenditure on land for those making purchases was around $855,000 per farm.
Around 57 per cent of all dairy farmers made additions to plant and equipment each year over the period, at an average of around $62,000 per farm. Around 7 per cent of dairy farmers made additions to buildings and structures. Expenditure on these capital additions averaged around $114,000 per farm.
In most dairy regions, trends in farm capital and number of farms follow the national trends. The three Victorian regions have the most influence on national trends because those regions account for two-thirds of Australia’s milk production.
The number of dairy farms fell in all regions, with the largest decreases being in the Subtropical and Murray regions (Figure 21). Despite the ongoing decrease in farm numbers in the Murray region, the total value of capital for dairy farms in the region has been increasing since 2010–11 (Figure 22). Similarly, the number of farms in the Gippsland region has trended downwards over time, while the total value of capital has increased since 2011–12. As a result of this increase, the Gippsland region accounted for 25 per cent of the total capital of dairy farms in 2016–17
From 2000–01 to 2016–17 the number of dairy farms fell by 44 per cent in the Murray region and by 21 per cent in the Gippsland region. Despite these declines, the total value of capital increased in real terms by 38 per cent in the Murray region and 122 per cent in the Gippsland region. The Murray region accounted for 21 per cent of the total capital value of Australian dairy farms in 2016–17.
The number of dairy farms in the New South Wales region fell by 45 per cent but the total capital value of dairy farms in the region rose by 24 per cent in real terms, accounting for around 9 per cent of the total capital value of Australian dairy farms in 2016–17.
In Tasmania, the total value of capital increased by 86 per cent in real terms over the same period and the number of dairy farms declined by around 34 per cent. Tasmania accounted for 8 per cent of the total capital value of Australian dairy farms in 2016–17.
The total capital value of dairy farms in South Australia increased by 10 per cent in real terms between 2000–01 and 2016–17 and the number of dairy farms declined by 59 per cent. Average total capital increased by 167 per cent to $5.7 million per farm. South Australian dairy farms accounted for 5 per cent of the total capital value of Australian dairy farms in 2016–17.
The total capital value of dairy farms in Western Australia declined by 8 per cent between 2000–01 and 2016–17 and the number of dairy farms decreased by 60 per cent. Average total capital increased by 128 per cent to $10 million per farm. Western Australian dairy farms accounted for 6 per cent of the total capital value of Australian dairy farms in 2016–17.
From 2000–01 to 2016–17 the total capital value of dairy farms in the Subtropical region declined by around 36 per cent due to a substantial decline in the number of dairy farms (73 per cent). The region accounted for around 8 per cent of the total value of capital in 2016–17.
The proportion of dairy farms adding new investments over the five years to 2016–17 was largest in Western Australia, Western Victoria and Tasmania (Figure 23).
Aruni Weragoda, James Frilay and Dale Ashton
In 2016–17 an estimated 5,800 dairy farms were registered in Australia (Dairy Australia 2018). Around 67 per cent of these farms were in Victoria, 11 per cent in New South Wales, 8 per cent in Tasmania, 7 per cent in Queensland, 4 per cent in South Australia and 3 per cent in Western Australia.
From 2000–01 to 2016–17 the total number of Australian dairy farms fell by around 51 per cent. Although most of this decline was in Victoria, the largest percentage decline was in Queensland (Figure 24).
Over the past 30 years, the structure of the Australian dairy industry has changed markedly. Restructuring has been driven by a range of factors, including:
Despite fewer resources being used for milk production, restructuring has promoted a more efficient industry and enabled growth in the gross value of Australian dairy production per farm in real terms. Dairy farmers have adapted by increasing the size and intensity of their operations, with more cows per farm, higher stocking rates and greater use of supplementary feeding.
The concentration of Australian milk production among the states has shifted somewhat, with Victoria and Tasmania expanding and all other states contracting (Figure 25). Victoria is the largest milk producer, accounting for an estimated 64 per cent of total milk production in 2016–17, followed by New South Wales (12 per cent) and Tasmania (9 per cent).
From 2000–01 to 2016–17 Tasmanian milk production increased by 42 per cent. This was the largest increase of any state (Figure 26). Total milk production in Western Australia remained steady, despite declining numbers of cows milked, as a result of greater average milk yield per cow. In the same period, total milk production in Victoria and New South Wales declined by 15 per cent, Queensland (by 45 per cent) and South Australia (by 30 per cent) mainly because of a decline in total number of cows milked.
From 2000–01 to 2015–16 total milk production per farm trended upwards (Figure 27) as a result of an increased number of cows being milked and higher average milk yields. However, in 2016–17 milk production per farm fell by 1.3 per cent to 1.42 million litres per farm as a result of a decline in the milk yield per cow before rising by an estimated 3 per cent in 2017–18.
At the national level, average stocking rates per hectare operated for dairy farms was 20 per cent higher in 2016–17 than in 2000-01. The average stocking rate increased for all states except Victoria, where the rate decreased by 7 per cent (Figure 28).
Advances in breeding and genetics have allowed dairy farmers to select cows for a range of traits, such as higher milk yield, longevity and reduced health problems. These developments contributed to milk yields per cow increasing at an annual average rate of 1.2 per cent a year from 2000–01 to 2016–17(Figure 29). However, research suggests the focus on breeding higher-yielding cows has affected cow fertility (Berry, Friggens, Lucy &Roche 2016). Fertility problems affect cow lactation and therefore farm productivity. In response, dairy farmers have adopted a variety of management practices to improve cow fertility, including artificial insemination, genetic selection, heat detection programs and transition diets.
From 2000–01 to 2016–17 the number of farms milking fewer than 200 cows a year declined by around 71 per cent, largely accounting for the decline in the total number of farms. The number of farms milking between 200 and 350 cows initially fell but increased towards the end of the period as a number of small farms increased the size of their milking herds. The number of farms milking more than 350 cows remained relatively steady (Figure 30). Reflecting these changes, the average area operated by dairy farms increased by around 34 per cent from 2000–01 to 2016–17, reaching an estimated 313 hectares in 2016–17.
In 2016–17 milk production per farm decreased in all states except Queensland (Table 4). Milk production increased in Queensland as a result of increases in both the number of cows milked and milk yield per cow. In New South Wales increases in average milk yield per cow were partly offset by a decline in the number of cows milked. In South Australia and Western Australia increases in the number of cows milked were more than offset by a decline in average milk yield per cow. Milk production declined in Tasmania as a result of a decline in both the number of cows milked and milk yield per cow.
Dairy farmers plan their breeding programs in response to pasture growth and milk processor price incentives. The choice of calving pattern determines the seasonality of milk supply and demand for fodder. Common calving patterns are seasonal, year round and split.
On average, over the 5 years to 2017–18, 57 per cent of dairy farms used year-round calving, 25 per cent used seasonal calving and 17 per cent used split calving. Dairy farms using a split calving pattern produced larger milk volumes on average over the 5 years to 2016–17. Split calving results in more cows being milked and greater milk yield per cow than seasonal and year-round calving.
Use of these calving patterns varies across the states (Figure 31). Dairy farms in Queensland, New South Wales and Western Australia primarily use year-round calving to maintain a year-round supply of fresh milk to the domestic market. Dairy farms in other states use a mix of seasonal, year-round or split calving patterns. Dairy farms in Tasmania and Victoria mainly use a seasonal calving pattern.
Agricultural productivity estimates are available for the dairy industry.
Berry, D.P, Friggens, N.C, Lucy, M & Roche, J.R 2016, Milk production and fertility in cattle, Annual Review of Animal Biosciences, vol. 4, pp 269-290.
Dairy Australia 2018, farm-facts, Dairy Australia, Victoria, accessed 08 June 2018.
Martin, P, Shafron, W & Phillips, P 2017, ‘Farm performance: broadacre and dairy farms, 2014–15 to 2016–17’, Agricultural commodities: March quarter 2017, Australian Bureau of Agricultural and Resource Economics and Sciences, Canberra.
Broadacre and dairy industries data
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Australian dairy: financial performance of dairy farms, 2015–16 to 2017–18
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Farm surveys definitions and methods
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Farm performance: broadacre and dairy farms
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