The report, Australian Dairy: Financial performance of dairy farms, 2005-06 to 2007-08, was released earlier this week by Dr Don Gunasekera, ABARE's acting executive director.

"Improved seasonal conditions in some dairy regions resulted in higher milk yield per cow in 2007-08, allowing dairy farmers to take advantage of higher milk prices," Dr Gunasekera said.

According to the report, farm cash incomes for dairy producers in Australia are estimated to have more than tripled to average more than $110,000 in 2007-08, while average farm business profit increased to nearly $24,000, up from a loss of $39,400 in 2006-07.

"Not all dairy regions experienced similar seasonal conditions in 2007-08, therefore the ability of farmers to increase production while milk prices were high was mixed," Dr Gunasekera said.

ABARE says dairy producers in northern Victoria and the Riverina are estimated to have recorded an average farm cash income of $66,000, some 40pc below the national average.

They were the only regions to record a farm business loss in 2007-08.

But ABARE says the rise in rural property values in recent years has enabled many dairy farms to maintain relatively high equity, offsetting the effects of rising debt on farm business balance sheets.

Increased capital investment in past years has also placed many Australian dairy producers in a good position to improve their business viability.

However, ABARE says seasonal conditions and water availability will continue to play an important role in the future viability of dairy farmers.