Fig 4.2 – ABARES farm performance (avg per farm)

Agribusiness BreakfastUnilever Sustainable Sourcing Meeting27 August 2012

Retail

ExportMilk

production

Food serviceDist’n

MarketingImport

Inputs

supplements

water

• Rising grain prices• Limited supply of cows

and heifers• Consumers value

focussed• Retailers competing on

price

Processing/manufacturing

Rebalancing the supply chain

• Clearing stocks for exporters as prices weaken

• Strong competition for milk in southern region remains

• Pressure on domestic profit margins

• “Two speed” industry – export vs domestic regions• Weaker pricing due to commodity price falls • Demand led by China and south-east Asia

• Strong supply response from ALL exporting regions

-

1,000

2,000

3,000

4,000

5,000

6,000

Jul-07 Jul-08 Jul-09 Jul-10 Jul-11 Jul-12

US$

per

tonn

e

SMP WMP Butter Cheese

Commodity prices finding new level

Increased supply for all exporters

EU-27 US NZ Aust Argentina Brazil (1,500)

(1,000)

(500)

-

500

1,000

1,500

2,000

2,500

3,000

2008 2009 2010 2011 2012(f)

mill

ion

litre

s

Slowing US production growth

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

Jan-

10Fe

b-10

Mar

-10

Apr-

10M

ay-1

0Ju

n-10

Jul-1

0Au

g-10

Sep-

10O

ct-1

0N

ov-1

0D

ec-1

0Ja

n-11

Feb-

11M

ar-1

1Ap

r-11

May

-11

Jun-

11Ju

l-11

Aug-

11Se

p-11

Oct

-11

Nov

-11

Dec

-11

Jan-

12Fe

b-12

Mar

-12

Apr-

12M

ay-1

2Ju

n-12

Jul-1

2

Mon

thly

gro

wth

YO

Y

US more susceptible to rising grain prices

26/0

8/20

0726

/10/

2007

26/1

2/20

0726

/02/

2008

26/0

4/20

0826

/06/

2008

26/0

8/20

0826

/10/

2008

26/1

2/20

0826

/02/

2009

26/0

4/20

0926

/06/

2009

26/0

8/20

0926

/10/

2009

26/1

2/20

0926

/02/

2010

26/0

4/20

1026

/06/

2010

26/0

8/20

1026

/10/

2010

26/1

2/20

1026

/02/

2011

26/0

4/20

1126

/06/

2011

26/0

8/20

1126

/10/

2011

26/1

2/20

1126

/02/

2012

26/0

4/20

1226

/06/

2012

0

50

100

150

200

250

300

350

400

450

500IGC GOI Wheat Maize

inde

x

Major importers by volume (‘000 tonnes)

0200400600800

1,0001,2001,4001,6001,8002,000

Sth East Asia Africa Middle East Greater China

Japan Russia Mexico

2007 2008 2009 2010 2011

Chinese imports remain strongJa

n-10

Feb-

10M

ar-1

0Ap

r-10

May

-10

Jun-

10Ju

l-10

Aug-

10Se

p-10

Oct

-10

Nov

-10

Dec

-10

Jan-

11Fe

b-11

Mar

-11

Apr-

11M

ay-1

1Ju

n-11

Jul-1

1Au

g-11

Sep-

11O

ct-1

1N

ov-1

1D

ec-1

1Ja

n-12

Feb-

12M

ar-1

2Ap

r-12

May

-12

Jun-

12

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

0%

10%

20%

30%

40%

50%

60%

TotalWMP share

2011 EU NZ US Aust Latins Other 2021 -

5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000 55,000

Axi

s T

itle

Changes required from major exporters 2011 to 2021(meq mill litres)

Sensitivity of long term market “balance”Growth assumptions underlying forecast

NZ production averages 2.5% p.a.

Chinese liquid milk demand 6.5% p.a.

Chinese production grows 8% p.a.

EU production grows 0.4% p.a.

US grows 1.4% p.a.

Current Australian market settings

Dairy market • Highlights

• Per capita consumption 297 litres p.a.• Wholesale value $6.4 billion

• Key influences• Retailer activity• More at home eating• Less premium and discretionary food

spending• Health and “naturalness”

• Supermarket activity• Private label milk price• Promotions

• Margin pressures remain• Cautious consumers• Competitive retailers

15-N

ov-1

04-

Dec-

1023

-Dec

-10

11-J

an-1

130

-Jan

-11

18-F

eb-1

19-

Mar

-11

28-M

ar-1

116

-Apr

-11

5-M

ay-1

124

-May

-11

12-J

un-1

11-

Jul-1

120

-Jul

-11

8-Au

g-11

27-A

ug-1

115

-Sep

-11

4-O

ct-1

123

-Oct

-11

11-N

ov-1

130

-Nov

-11

19-D

ec-1

17-

Jan-

1226

-Jan

-12

14-F

eb-1

24-

Mar

-12

23-M

ar-1

211

-Apr

-12

0

50

100

150

200

250

300Yoghurts Cheese Ice Cream Butters & spreads

Index

Weekly printed promotions of dairy products by grocery chains

Retailers under pressureQ

108

Q20

8

Q30

8

Q40

8

Q10

9

Q20

9

Q30

9

Q40

9

Q11

0

Q21

0

Q31

0

Q4

10

Q1

11

Q2

11

Q3

11

Q4

11

Q1

12

Q2

12

Q3

12

-3%

-1%

1%

3%

5%

7%

9% Woolworths Coles

Australian market trends- volume sales until end of June 2012

Custard

Cream

Dairy desserts

Yogurt

Butter / Blends

Cheese

Milk

-7% -6% -5% -4% -3% -2% -1% 0% 1% 2% 3%

QTR Jun12 % growth

MAT Jun12 % growth

Supermarket trends- volume and value until end of June 2012

Fresh Milk

UHT Milk

TOTAL Milk

Branded Milk

Private Label Milk

Butter

Dairy blends

TOTAL Dairyspreads

-2.0% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0%

Value

Volume

Farmgate market outlook for 2012/13

Southern• Opening announcements $4.50

kg MS (34cpl)

• Full year range $4.70-$5.00 kg MS (35-38cpl)• Down 8 to 10% on 2011/12• Competition remains strong

• Assumptions underlying DA forecast were• Commodity prices to trade in range

US$3,000-$4,200 per tonne• AUD between 100 and 105 US cents

Fresh milk regions• Farmgate prices under pressure

• Supply chain profitability• New contracts• Changed retailer contracts affecting

access

• Range of impacts• Reductions in Tier 1 access• Tier 2 milk 15-18 cpl• Regional differences

• Challenge of aligning supply• Cost of year round production• Seasonal shortages• Value and usage of “excess” milk

National Dairy Farmer Survey 2012

• 1002 farmers interviewed nationally

• Fieldwork conducted from 6 to 29 February• Flooding in Northern Victoria

• Response rate rose to 72%• 63% in 2011

• Follow-up survey planned for August

050

100150200250

MD

WV

Gip

ps

SEQ

NSW SA W

A

Tas

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2004 2005 2006 2007 2008 2009 2010 2011 2012

% f

arm

s

Very negative

Fairly negative

Neutral/unsure

Fairly positive

Very positive

Attitude to the future of the national industry

Significant differences between regions

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Nat NV WV Gps SEQ NSW SA WA Tas

2005

2006

2007

2008

2009

2010

2011

2012

Positive attitude to industry future by region (% farms)

Source: National Dairy Farmer Survey 2005-2012

0%

10%

20%

30%

40%

50%

60%AU

ST MD

WV

Gipp

s

SDP

NSW SA W

A

TAS

2009 2010 2011 2012

% farms intending to invest in next 12 months (comparing 2009 - 2012 surveys)

Little change in 3 yr growth outlook

0%10%20%30%40%50%60%70%80%90%

100%

2004 2005 2006 2007 2008 2009 2010 2011 2012

% o

f fa

rms

not in business static decrease increase

Situation & Outlook for dairy markets

• In the short term international market needs to rebalance• Solid demand• Surging supply• Economic uncertainty

• Long term outlook remains positive but• Tight balance = volatility• Australia’s relevance?• Changes in EU and US policy and international engagement

• Domestic margins will remain under pressure• Cautious consumers• Price-focussed retailers

Situation & Outlook for Australian dairy farmers

• Southern prices down 8-10% in 2012/13

• Any upside for the price outlook?• Competition for milk• Weaker Nth Hemisphere supply• Strong demand

• In domestic regions (NSW, Qld)• Downward pressure on prices• Impact highly variable

• Milk production forecast for 2012/13 up around 2% • 9.6 to 9.65 billion litres

• 3 year milk production outlook• Surveyed intentions – based on 2011/12 production• 9.8 to 10.1 billion litres in 2014/15

Thank you!Download the full report at www.dairyaustralia.com.auNext update: 12 September