World production of dairy commodities is continuing to increase despite the potential impact of factors such as FMD in Europe, poor seasonal conditions in the US and deregulation of the Australian dairy industry, according to Rabobank.

Rabobank' recent report, Australian Dairy Global Focus, explained that global milk production in 2001 is estimated at 574 million tonnes, approximately 1% higher than in 2000. 

Australia is a relatively small player in terms of milk supply, accounting for just 2% of world production. Following record production levels in 1999/2000, production in the 2000/01 season fell by 2.8% to 10,548 million litres. This resulted from poor seasonal conditions across a broad range of dairy regions, high grain prices which limited the scope of some farmers for supplementary feeding and the departure of approximately 8% of farmers nationally. Should normal seasonal conditions prevail in 2001/02, the industry expects production to resume its expansionary trend.

The European Union (EU) is still by far the largest milk-producing region, with 125 million tonnes representing 21% of the world's production. Production levels are relatively stable as a result of the quota systems which are in place. India, which is the largest producing country, has increased production in 2001 by 4% in response to strong domestic demand. Following two successive years of increasing production, milk production in the US fell by 1% to 75 million tonnes, predominantly as a result of a shortage of good quality feed and the flow on effect of lower milk prices to producers the previous year.

The growth in world trade of dairy products slowed in 2001 as domestic producers and processors in the major producing regions focus on their profitable domestic markets, however, it still accounts for approximately 5% of world production with Australia being a major player.

Australia's exports have grown by approximately 60% since 1996, as this is where increases in production must flow, and its share of world trade has grown at the expense of the EU which has focused more on its attractive domestic market.

The report argued that the Australian dairy industry, with its clean green image, is well positioned to take advantage of opportunities which arise in the world market. The improvements in productivity which have been achieved by both farmers and processors will need to continue, though, if the industry is to ensure its ongoing competitiveness on world markets. Although New Zealand, Australia and Argentina currently have an advantage given their low cost production systems, other regions are focussing on ways to increase their productivity and reduce their costs.

Global trends of falling farm numbers are likely to continue as the smaller less efficient farmers leave the industry. The larger farmers are expected to continue to invest in their business to expand their herd size and adopt new technologies which increase their overall efficiency. The quality of milk produced by these farmers will also improve, resulting in higher fat and protein contents. With both herd size and production per cow continually increasing, experts expect world production of milk to continue growing but from a more efficient base.

In order to compete successfully in the future, dairy processors need to secure their supply and be efficient; they need to be developing brands and value added products; they need to be looking for innovative opportunities; and they need to be strengthening their relationships within the value chain. As processors strive to achieve these objectives the industry looks set to see ongoing consolidation.