WORLD markets are getting increasingly hungry for Australian dairy exports, but on current trends our exporters may be hard-pressed to find enough milk to satisfy overseas orders profitably.
Australia, New Zealand and some South American nations are set to be more important to the international dairy trade in the coming decade because traditional big guns like Europe and the US are likely to consume almost everything their farmers can deliver.
Only seven per cent of global milk production is now traded internationally, but demand is also rising quickly in nearby Asia.
The era of big production subsidies which resulted in stockpiled butter mountains and milk lakes in the northern hemisphere during the 1980s and '90s has all but ended, with world stocks now slashed to minimal levels.
Although NZ and Australia already supply half the world's export trade, our markets could become much more volatile, according to Dairy Australia, because few reserves are left to insulate us from dramatic price spikes when buyers get hungry for supplies.
Big prices are likely to be followed by big price drops - volatility that could make it hard for farmers to budget or rebuild herds with confidence, said Dairy Australia's Melbourne-based market strategy and knowledge manager, Joanne Bills.
For farmers to survive these roller coaster prices and deliver more milk for our burgeoning markets, dairy processors will be under increasing pressure to lock in long term pricing and export schedules.
In the past decade dry seasons, urban growth onto farmland and the price discounting which followed domestic market deregulation in NSW and Queensland have slashed Australia's milk production from 10.5 billion litres to 8.1b.
While prices improved for many farmers this year, savage cuts experienced in southern Australia last year left many financially stretched and shy about committing to long term production increases if price stability insurance issues were not addressed, Ms Bills said.
She said Australia's medium to long term export prospects promised to be "quite rosy" for exporters who could lock in reliable and profitable contracts.
Asia was unlikely to supply its own bullish demand particularly in South East Asian countries like Malaysia and Indonesia.
China was expected to be importing strongly in the next few years, underpinning global demand, although big efforts were being made to lift its domestic production.
The Middle East was another rising star for Australian exports.
However, Australia's profitable dairy commodity markets were increasingly likely to be niche buyers paying premiums for lines such as special milk powder orders or product formulations, rather than generic bulk product.
"If dairy companies can lock in very stable volumes and prices, Japan (a prized 79,000 tonnes-a-year market for Australian cheese) is likely to continue to be a strong trading base," said Ms Bills.
Dairy Australia's latest Situation Outlook report recently also highlighted local dairy production challenges including climate and water shortage pressures for traditional irrigated dairy powerhouse areas in northern Victoria, the Lower Murray and NSW's Riverina.
A decade ago the Riverina/northern Victoria produced 28pc of Australia's milk, but by last financial year the figure was down to 21pc.
"Our export outlook might be optimistic, but farmers are a lot more cautious than a couple of years ago and not so willing, or able, to chase production increases," Ms Bills said.
Dairy industry consultant and University of Sydney dairy specialist, Dr Ian Lean, warns urban encroachment onto good, well-watered farming land is just as much a danger to Australia's ability to service food markets as climate risk.
"Unless we address the impact on arable land within a 300 kilometre radius of our major population centres we'll soon have a major problem feeding our domestic and off shore markets efficiently," Dr Lean said.
"It's not unreasonable to expect some of our most reliably watered land stay in productive agricultural use."
Dr Lean said while irrigation areas were important when water was available, the efficiency of pasture production systems in good rainfall zones near big markets - including South East Queensland and NSW's North Coast and Illawarra - meant these areas should be encouraged for farming.
Pasture-based tablelands dairies would also be more important because of their more reliable rainfall and proximity to eastern States markets.
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