In its Situation and Outlook October Update, Dairy Australia reports that the cuts in global growth forecasts is combining with the volatility of exchange rates and input prices, to increase the uncertainty facing Australia’s dairy industry.

However, despite the uncertain international situation, Dairy Australia says that of 340 farmers who took part in a September survey, almost 90pc continue to feel positive about the future of the industry.

Dairy Australia managing director Dr Mike Ginnivan says the 2008-09 season got off to a strong start with farm gate prices in southern Australia opening 8-9pc higher than last season, and are likely to finish close to last year.

However, consumers in developing countries, where most Australian dairy product is sold, are also reacting to the inflationary pressures of rising food and fuel prices, and as a consequence choosing to buy fewer dairy products.

"This falling demand, combined with increased supply has resulted in dairy commodity prices falling almost 20pc in US dollar terms," Dr Ginnivan said.

"Until we completely understand the depth and extent of the international financial situation, the export situation remains a moveable feast for the Australian dairy industry, however, the domestic market is expected to remain steady."

Dairy Australia's manager of strategy and knowledge, Joanne Bills, stresses that the while the falling dollar is a positive it does not necessarily completely negate the decline in commodity prices for exporters.

"While the simultaneous depreciation of the Aussie dollar has largely offset the impact on spot returns, the final impact on returns to exporters this year will depend on individual company hedging policies," she said.