2020–21 to 2022–23
- The average farm cash income across all dairy farms in Australia in 2022–23 is projected to be $361,000 per farm – an increase of 10% on the previous year, and a record high for the industry in real terms (see methodology). The average rate of return to capital is projected to be 3.6% in 2022-23, compared with 3.7% in 2021-22.
- There is wide variability across farms, with the top 20% of dairy farms projected to earn an average farm cash income of $1.17 million per farm in 2022–23, at an average rate of return of around 7%. This group of farms is estimated to account for 48% of dairy industry output (turnover) in 2022–23.
- The bottom 20% of farms are projected to earn an average farm cash income of negative $66,000 per farm in 2022–23, at an average rate of return of -0.9%. This group of farms is estimated to account for 12% of industry turnover in 2022-23.
- The increase in average farm cash income in 2022–23 follows year-on-year increases in 2020–21 and 2021–22.
- Average farm cash incomes in all states are now considerably higher in real terms than their corresponding longer term (10 year) averages.
- While milk prices are at record levels, seasonal conditions during 2022–23 have not been ideal in many dairy farming regions, particularly in eastern Australia where excessively wet conditions hampered grazing and fodder production systems. As a result, milk production per farm is expected to be lower in most states in 2022–23. However, the positive effect of higher milk prices is expected to outweigh the negative effect of a drop in milk production per farm.
- Supplementary fodder, a major cost item for many dairy farmers, is expected to increase by around 8% in 2022–23 to an average of $332,100 per farm as a result of higher prices for feed grains.
- Higher market interest rates are expected to result in dairy farm interest costs averaging $89,300 per farm in 2022–23, an increase of 120% on the previous year. The impacts of higher interest rates vary from farm to farm, depending on debt holdings.
- At 30 June 2022, one-third of dairy farms had a total debt of less than $300,000 per farm, with many of these farms holding little to no debt. Another one-third of dairy farms had debts between $300,000 and $1.3 million per farm, and the remaining one-third of farms had debt of $1.3 million or more. For these farms, recent increases in interest rates are expected to have a material impact on total farm costs in 2022–23.
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At the national level, the average farm cash income of dairy farms increased by 18% in 2021–22 to $327,700 per farm. In 2022–23 average farm cash income is projected to increase by a further 10% to $361,000 per farm.
Other measures of farm profitability, such as average profit at full equity and the average rate of return to capital, also improved in 2021–22, and are expected to either improve further or remain largely unchanged in 2022–23. For example, the average rate of return to capital (excluding capital appreciation) increased from 3.2% in 2020–21 to 3.8% in 2021–22, and is projected to be 3.6% in 2022–23. The average rate of return is projected to decline in 2021–22 because of a smaller buildup in trading stocks than the previous year and a proportionally larger increase in the total value of farm capital because of rising land values.
The broad improvement in the profitability of dairy farming recently is a welcome development for an industry that endured difficult seasonal and market conditions in much of the preceding decade.
At the national level, average farm cash incomes in each of the last four years (including our projection of average farm cash income in 2022–23) have been above the 10-year average to 2021–22 ($185,300 in real terms). Moreover, average farm cash incomes in both 2021–22 and 2022–23 are around double the longer term average (Figure 1).
Performance by state
The majority (62%) of Australia’s dairy farms are in Victoria and collectively produce the vast majority of Australia’s milk (64% in 2021–22). In terms of milk production per farm, Victorian dairy farms are larger than dairy farms in Queensland, but smaller, on average, than those in all other states (Figure 2 and Figure 3).
In 2021–22, higher milk prices at the farm-gate and an increase in the average quantity of milk produced per farm helped drive a 24% increase in average farm cash income in Victoria.
In 2022–23, aggregate milk production in Victoria is expected to fall around 7%, while farm-gate milk prices are expected to be considerably higher (up around 20%). While some costs are projected to increase – notably feed costs and interest expenses – the average level of farm cash income in Victoria in 2022–23 is projected to be $343,000 per farm – an increase of 7% over the previous year and well above the 10-year average to 2021–22 of $169,000 per farm.
New South Wales
New South Wales is the second largest milk-producing state, and currently accounts for 12% of national milk production. In 2021–22 the profitability of dairy farms in New South Wales improved substantially, driven by higher milk production per farm and higher farm-gate milk prices. The average farm cash income in 2021–22 was $368,300 per farm – an increase of 31% compared with the previous year, and well above the 10-year average to 2021–22 of $207,800 per farm.
Excessive rain and flooding events earlier in the year are putting a brake on milk production in 2022–23, and it is expected that average milk production per farm will be around 10% lower this year compared with 2021–22. Larger reductions in milk production are expected in northern New South Wales where seasonal conditions have been least favourable.
Farm-gate milk prices in 2022–23 have increased substantially however, and their positive effect on farm revenue and profitability is expected to largely offset the negative effects of lower milk production and higher feed and interest costs. The average farm cash income on dairy farms in New South Wales is projected to be $369,000 per farm in 2022–23, unchanged in real terms compared with the previous year.
Tasmania is the only state to record an increase in aggregate milk production over the last twenty years. Milk production in all other states contracted between 2001 and 2022 as farms in these regions industry adjusted to a range of factors including the deregulation of dairy marketing arrangements, periods of severe drought and competition for land from other sources and sectors. Tasmania rose from the fifth largest milk producing state in 2001 to the third largest in 2022. On current trends Tasmania may soon surpass New South Wales as Australia’s second largest milk producing state. Tasmanian dairy farms are, on average, comparatively large in terms of milk production per farm compared with those in other states (Figure 3).
Seasonal conditions in Tasmania during 2021–22 were mixed, and aggregate milk production across the state as a whole fell compared with the previous year. This pattern was reflected in ABARES farm survey results, with milk production per farm declining by around 8% in 2021–22. The average level of farm cash income was $383,000 – a decline of 15%. Tasmania was the only state to record a reduction in average farm cash income in 2021–22. However, farm cash incomes remained well above the 10-year average to 2021–22 ($266,000 per farm in real terms).
In 2022–23 a modest increase in milk production combined with a substantial increase in farm-gate milk prices is driving a turnaround in farm cash incomes. Average farm cash income in Tasmania is projected to be $502,000 per farm in 2022–23 – an increase of 31%.
South Australia currently accounts for around 6% of national milk production and its dairy farms are, on average, Australia’s largest in terms of litres of milk produced (Figure 3). Very few dairy farms in South Australia produce less than 1 million litres of milk per annum, and average milk production per farm is close to 2.5 million litres.
Although seasonal conditions in 2021–22 were less than ideal, milk production per farm was slightly higher compared with the previous year, as were farm-gate milk prices. Average farm cash income was $431,600 per farm – an increase of 12% over the previous year and well above the 10-year average to 2021–22 ($246,000 per farm in real terms).
As in other states, aggregate milk production in South Australia is expected to fall in 2022–23 but farm-gate milk prices will be substantially higher. Average farm cash income is projected to be $544,000 – an increase of 26%.
Like South Australia, Western Australia accounts for a comparatively small share of national milk production (around 4% in recent years), and its dairy farms are, on average, comparatively large (Figure 2 and Figure 3).
An increase in average farm-gate milk prices and in revenue from beef cattle led to an improvement in dairy farm cash incomes in 2021–22. Average farm cash income was $429,100 per farm in 2021–22 – an increase of 17% over the previous year.
Unlike the eastern states, better seasonal conditions mean that aggregate milk production in WA is expected to be largely unchanged in 2022–23. Average farm-gate milk prices are projected to increase by 15%, and average farm cash income is projected to increase to $483,000 – 13% higher than the previous year and well above the 10-year average to 2021–22 ($332,000 per farm in real terms).
Queensland accounted for around 3% of national milk production and 6% of all dairy farms in 2021–22. The disproportionately large share of farms reflects the fact that dairy farms in Queensland are, on average, much smaller than those in other states (Figure 3). Queensland dairy farms are also geographically dispersed, ranging from tropical and sub-tropical regions in the north to more temperate regions in the south-east.
Average farm cash income in Queensland in 2021–22 was $147,800 per farm – largely unchanged compared with the previous year and only slightly above the 10-year average to 2021–22 ($130,000 per farm in real terms).
Aggregate milk production in Queensland is expected to fall by around 8% in 2022–23, partly due to the adverse effects of heavy rain and flooding earlier in the year. Average milk production per farm in Queensland is expected to reflect this development, although the price received for milk at the farm-gate is expected to be considerably higher compared with 2021–22. On balance, the profitability of dairy farming in Queensland is expected to improve in 2022–23, with average farm cash income projected to be $187,000 per farm – an increase of 27% on the previous year.
In real terms the average capital value of Australian dairy farms increased substantially in both 2020–21 and 2021–22 (Figure 4). The increases reflected the improved profitability of dairy farming over the period and the broader increases in agricultural land values in recent years that have been driven by improved commodity prices and comparatively favourable seasonal conditions.
The strong upward trend in the real value of dairy farms over the last 20 years or so largely reflects the increase in the average size of dairy farms (as measured by holdings of dairy cattle), as the industry restructures in response to market and technology changes and developments that generally suit larger, rather than smaller, dairy farms.
The average level of farm debt has also trended up in real terms over the longer term, largely reflecting the increase in the average size of dairy farms (Figure 5). Average equity rates (the ratio of owned capital to total capital) show some variability over the longer term, but were relatively stable at just over 80% for much of the last decade. Average equity rates increased in 2020–21 and 2021–22 as dairy farm capital values surged.
In 2021–22 the ‘within year’ change in the total debt carried by dairy farms was an increase of $161,900 per farm. Total closing debt (that is, farm debt at 30 June) on dairy farms in 2021–22 averaged $1.511 million per farm, meaning that average debt levels increased by 12% between the beginning and the end of the financial year.
Despite the increase in debt in 2021–22, the ability of dairy farms to service this debt (as measured by the ratio of interest payments to gross farm income – the interest coverage ratio) improved on the back of much higher farm cash incomes. However interest costs associated with farm debt are projected to increase substantially in 2022–23, and are likely to increase further in subsequent years if interest rates remain at or around current levels.
The consequences for farms carrying large amounts of debt are likely to be material. For a dairy farm carrying the ‘average’ level of debt in the industry in 2021–22, each 1 percentage point increase in the rate of interest payable on that debt represents an increase in annual cash costs of $15,000.
Liquid assets and non-farm income
Dairy farms typically hold fewer reserves in the form of liquid assets (bank deposits, farm management deposits etc) compared with broadacre farms. This may be because dairy farms typically receive regular and reasonably predictable monthly payments for their main output – raw milk. In contrast, broadacre livestock and cropping farms typically receive much less frequent and predictable payments for the commodities they sell. Cropping farms, for example, can face entire years when receipts are minimal – particularly during droughts. As a result, broadacre farms typically rely more heavily on savings and other financial reserves to manage within-season and between-season risks.
On average, dairy farms held $174,400 in liquid assets in 2021–22. This was equivalent to around 12% of total cash receipts in that year, and below the average ratio of liquid assets to total cash receipts in this industry over the past twenty years, which was around 20% (Figure 7).
The reduction in the ratio of farm liquid assets to total cash receipts reflects both a reduction in liquid assets held, and the more recent jump in cash receipts. It is expected that average liquid asset holdings on dairy farms will increase in 2022–23 (and beyond) if the recent improvement in dairy farm incomes is sustained.
On average, small to medium sized dairy farms (based on farm turnover) tend to hold relatively more liquid assets as a proportion of their annual farm cash income compared with larger farms (Figure 8). Also, small dairy farms tend to rely more heavily on non-farm income to support household expenditure. For example, small dairy farms sourced one-third (33%) of their total household income (farm cash income plus non-farm income) from off-farm wages and salaries in recent years. Among large farms this proportion was 4%.
The use of Farm Management Deposits (FMDs) is less common among dairy farms compared with livestock and cropping farms. For example, at 30 June 2022 an estimated 14% of dairy farms held FMDs, compared with 21% of livestock farms. The average FMD balance amongst dairy farms holding FMDs was $272,300 per farm.
All dollar values in this industry report are reported in real terms, adjusted to 2022–23 values. Adjusting to real terms removes the effect of inflation and allows financial values of different time periods to be compared in like terms. ABARES adjusts for inflation using the consumer price index, supplied by the Australian Bureau of Statistics (Australian Bureau of Statistics, 2023).
The data in this report is drawn from ABARES Australian Dairy Industry Survey (ADIS). ADIS covers dairy farms with an estimated value of agricultural operations (EVAO) greater than $40,000.
Dairy Australia 2022a,Australian Dairy Industry In Focus 2022, Dairy Australia Limited.
Dairy Australia 2022b, Situation and Outlook December 2022, Dairy Australia Limited.
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