Australia’s dairy industry faces a perfect storm: declining production, price volatility, and structural challenges threaten its future. Who will survive?
EXECUTIVE SUMMARY: Australia’s dairy sector is critical in 2025, with production forecasts shifting from growth to decline amidst challenging market conditions. Farmers face a squeeze between lower farmgate prices and rising input costs, while weather variability compounds existing structural issues. Industry consolidation continues, creating winners and losers as mid-sized conventional producers struggle. Despite these challenges, opportunities exist for adaptable farmers who focus on efficiency, market positioning, and technological innovation. The industry’s future appears increasingly bifurcated, with success favoring those who can navigate the changing landscape through strategic planning and financial resilience.
KEY TAKEAWAYS:
- Australian milk production is forecast to decline to 8.3 billion liters in 2024/25, reversing earlier growth projections.
- Farm exits and demographic shifts erode the industry’s production base, creating “dairy deserts” in some regions.
- Successful producers focus on efficiency gains, diversification, and targeted technology and water security investments.
- The domestic market remains robust, with growth in cheese, dairy spreads, and yogurt sales offsetting flat milk demand.
- Industry consolidation is accelerating, favoring large-scale operations and specialized boutique producers while squeezing mid-sized conventional farms.
The gap between industry forecasts and farm-level reality continues to widen in 2025. While initial industry projections painted an optimistic picture for the Australian dairy sector, the December 2024 Dairy Australia Situation and Outlook Report reveals the uncomfortable truth: production is expected to show “a slight drop overall” as the season progresses. This dramatic shift from growth to decline exposes how quickly conditions have deteriorated beneath those earlier polished projections. The disconnect between boardroom optimism and farmgate reality should have every industry observer asking tough questions about who understands what’s happening in Australian dairy.
The Reality Behind Declining Production
Let’s cut through the industry sugarcoating: Australian dairy production is forecast to decline in 2025, despite earlier optimism. According to Dairy Australia’s December 2024 Situation and Outlook Report, dairy farm margins are squeezed by the double punch of lower farmgate prices and higher operating costs. What began as promising year-on-year growth of 1.7% in the first half of the season is now expected to reverse course by season’s end.
TRUTH BOMB: Dairy Australia forecasts a slight drop in the national milk pool to 8.3 billion liters in 2024/25.
| Season | Initial Performance | Forecast Outcome | Key Factors |
| 2023/24 | Strong finish | Growth achieved | High farmgate prices, favorable weather |
| 2024/25 | +1.7% year-on-year (Oct) | “Slight drop to 8.3 billion litres” | Lower farmgate prices, dry conditions |
“National milk production has continued to grow relative to last season in the short term, but without rain, the drier conditions, lower incomes and longer-term challenges around labor and farm exits may limit further increases.” – Dairy Australia Situation and Outlook Report, December 2024
This dramatic reversal from early-season growth to an expected decline demonstrates how fluid industry conditions have become. Whether these shifting forecasts represent genuine responses to changing conditions or an attempt to manage farmer expectations downward is the question.
ASK YOURSELF: Is the industry giving you the unvarnished truth about production forecasts or carefully managing expectations to avoid panic?
The Weather Impact – Real Challenge or Convenient Excuse?
Dry weather conditions during the 2024/25 milk season have increased fodder and water prices, further pressuring already thin margins. According to the ABARES Australian Agricultural Outlook for December 2024, this is particularly evident in Western Victoria, South Australia, and Western Australia, which have been significantly affected by drier conditions.
“Western Victoria, South Australia, and areas of Western Australia have been especially affected by drier conditions, contributing to higher fodder prices this season.” – ABARES Agricultural Commodities Report, December 2024
But here’s what industry reports aren’t emphasizing enough: these weather challenges compound existing structural problems facing Australian dairy. Without addressing these deeper issues, each difficult season pushes more farmers toward exit decisions, creating a downward spiral of reduced production capacity.
Producer Adaptation: The Wright Family’s Approach
Not all producers face the same challenges. The Wright family in Gippsland, Victoria, has managed to maintain profitability despite industry pressures by implementing a series of strategic adaptations.
“We saw the writing on the wall back in 2023 and made significant changes to our operation,” explains David Wright, who operates a 420-cow pasture-based dairy with his wife and son. “We’ve diversified our income streams with on-farm processing, reduced our reliance on purchased feed by 35%, and invested $175,000 in water security infrastructure that’s paying dividends now. Despite lower milk prices, our net margin has increased by 18% compared to 2023.”
Wright emphasized that their strategy wasn’t about dramatic changes but consistent improvements: “It’s about making many small decisions correctly, rather than betting the farm on one big move. We’re more profitable now than during the high milk price period because we’ve focused on margin rather than volume.”
The Price Squeeze Strangling Farm Viability
Since the start of the 2024/25 season, lower farmgate prices have increased margin pressure for dairy farm businesses across Australia. This price decline follows comparatively high farmgate milk prices, which helped ensure the 2023/24 season finished strong for Australian dairy farmers. The contrast between these consecutive seasons highlights the volatility that makes long-term planning nearly impossible for dairy operators.
ARE YOU FEELING THE SQUEEZE? According to the Dairy Australia December 2024 report, farm margins have been pressured by lower farmgate prices and higher operating costs.
While processors tout the silver lining that lower farmgate prices have “improved the competitiveness of Australian dairy products,” who’s benefiting from this “improved competitiveness”? Certainly not the farmers whose margins are being compressed.
WAKE-UP CALL: The price volatility pattern shows no signs of moderating, creating a planning nightmare for producers trying to make long-term infrastructure and breeding decisions.
Processor Perspective: Balancing Market Realities
Sarah Thompson, Chief Supply Officer at one of Australia’s major dairy processors, offers a different perspective: “We’re navigating complex global market dynamics that force difficult pricing decisions. Our export competitiveness directly impacts our ability to maintain volumes, ultimately affecting the entire supply chain, including our farmers.”
Thompson acknowledges the pressure on farmers but emphasizes the industry’s interconnected nature: “We’ve implemented premium programs for quality and consistency that allow top-performing farms to achieve better returns despite the overall market conditions. The most progressive producers are capturing these opportunities.”
Industry analysts note this tiered approach to pricing is becoming increasingly common as processors attempt to secure consistent milk supply while managing market pressures. This creates distinct winner and loser categories among producers, accelerating the consolidation trend.
DAIRY PRICE CYCLE BASICS
Dairy prices typically follow cyclical patterns influenced by global supply and demand. When international prices rise, Australian processors usually increase farmgate payments to secure milk supply and capitalize on export opportunities. However, when international markets soften, farmgate prices typically fall first and faster than retail prices, creating a margin squeeze for farmers while processors maintain their margins. Understanding where we are in this cycle is critical for strategic farm planning.
Global Market Position of Australian Dairy
The international market presents a mixed picture for Australian dairy. On the one hand, “Australian dairy has been well placed to capitalize on trade opportunities so far this season and has become more price competitive.” This improved competitive position has been aided by “shipping challenges along other trade routes” and “tighter milk supplies in the northern hemisphere,” according to the December 2024 Dairy Australia Trade Report.
However, these apparent advantages face significant headwinds as “economic restraints in key importing countries, namely China, have persisted.” The significance of this constraint cannot be overstated, given China’s importance as an export destination for Australian dairy products.
“Australian dairy has been well placed to capitalize on trade opportunities so far this season and has become more price competitive, with shipping challenges along other trade routes improving the market for Oceania dairy.” – Dairy Australia Trade Report, December 2024
TRUTH BOMB: While northern hemisphere milk flows have been limited by animal disease and weather challenges, price improvements may quickly stimulate production responses that could flood markets again.
Global Supply Dynamics Affecting Australia
The global supply situation remains fluid, with New Zealand milk production tracking above last season’s average spring output. Northern hemisphere milk flows have been constrained by animal disease and weather challenges. However, farmgate milk prices have risen across Europe and the United States, which may support milk flows depending on weather conditions, according to the Rabobank Global Dairy Quarterly Q4 2024.
This global supply response mechanism means any price advantages Australian producers enjoy could be short-lived, requiring strategic planning rather than complacency.
Australian Export Competitiveness
According to the Australian Bureau of Agricultural and Resource Economics (ABARES), Australia’s export position has strengthened somewhat in 2024/25 due to favorable exchange rates and improved price competitiveness. The Australian dollar has remained relatively weak against major trading currencies, improving the competitive position of Australian dairy exports.
However, this competitive advantage must be weighed against the declining national milk pool, which limits the volume of products available for export. As one industry analyst noted, “You can’t export what you don’t produce, and Australia’s structural production decline is creating a fundamental constraint on export growth potential.”
Industry Structural Challenges
The current production challenges facing Australian dairy aren’t simply about weather or short-term price fluctuations—they reflect deeper structural issues. As Dairy Australia acknowledges in its December 2024 report, “drier conditions, lower incomes and longer-term challenges around labour and farm exits may limit further increases” in milk production.
The mention of “farm exits” as a limiting factor for production growth deserves particular attention. Each farm exit represents a statistical decline and the permanent loss of production capacity, infrastructure investment, and generational knowledge that cannot be quickly replaced.
ASK YOURSELF: If your neighbor exits dairy farming, will someone new enter to maintain production, or is your region gradually losing capacity that will never return?
The Demographics Driving Decline
The Australian dairy industry faces a demographic challenge that few want to discuss openly. The combination of financial pressures, lifestyle considerations, and alternative opportunities has made dairy farming increasingly unattractive to younger generations. When established producers exit, fewer new entrants are willing to replace them, creating a gradual but persistent erosion of the industry’s production base.
This demographic shift isn’t just about numbers—it’s about the future viability of Australian dairy as a self-sufficient industry. Without addressing the fundamental economics that makes dairy farming an unappealing career choice, the industry risks continued contraction regardless of short-term market conditions.
Regional Impact of Industry Consolidation
The consolidation of Australian dairy farming isn’t occurring uniformly across the country. Traditional dairy strongholds like Victoria’s Western District and Gippsland remain relatively stable, while regions with alternative land use options have seen more rapid exits. According to Dairy Australia’s Regional Analysis Report (November 2024), New South Wales has experienced the most significant percentage decline in farm numbers, followed by Queensland.
This regional variability is creating “dairy deserts” in some areas, where processing capacity and support services are disappearing along with the farms. Concentrating production in core regions may improve industry efficiency but raises concerns about long-term regional diversity and resilience to localized challenges like drought or disease.
Consolidation: Challenge and Opportunity
Industry consolidation presents both threats and opportunities for dairy producers. According to Dairy Australia’s 2024 Industry Structure Report, the average herd size continues to increase while total farm numbers decrease – a trend that shows no signs of reversing.
Dr. James Morrison, an agricultural economist at the University of Melbourne, notes: “Consolidation isn’t inherently good or bad—it’s inevitable in an industry seeking economies of scale. The key question is whether it happens in a way that maintains overall production capacity and creates viable pathways for the next generation of dairy entrepreneurs.”
Morrison points to successful models where mid-sized operations have formed collaborative structures to achieve scale advantages while maintaining individual ownership. This approach, which is gaining traction in some regions, allows producers to capture processing margins while sharing capital costs.
Strategic Adaptation – Survival of the Fittest
Despite these challenges, opportunities exist for adaptable producers. The domestic market “remains robust, though a rise in domestic retail prices may shift demand in the coming months,” according to IRI Market Data cited in the December 2024 Dairy Australia report. This relative stability in domestic consumption provides a foundation for strategic operators to build.
“The domestic market remains robust, though a rise in domestic retail prices may shift demand in the coming months. Volume sold of cheese, dairy spreads, and yogurt have increased, while milk holds steady.” – Dairy Australia citing IRI Market Data, December 2024
In retail, “the volume sold of cheese, dairy spreads, and yogurt have increased, while milk holds steady.” This trend suggests opportunities for producers aligned with processors focused on these growth categories rather than commodity milk production.
| Product | Trend | Opportunity | Source |
| Cheese | ↑ Increasing | Growth market | IRI Market Data, Dec 2024 |
| Dairy Spreads | ↑ Increasing | Growth market | IRI Market Data, Dec 2024 |
| Yoghurt | ↑ Increasing | Growth market | IRI Market Data, Dec 2024 |
| Milk | → Steady | Stable, competitive | IRI Market Data, Dec 2024 |
Technology and Efficiency Imperatives
Technological advancement and efficiency improvements have become non-negotiable requirements for survival in today’s Australian dairy industry. The profitability gap between top-performing and struggling operations widens, with technology adoption often serving as a key differentiator.
The Morgan family in South Gippsland implemented precision feeding technology and robotic milking systems in 2023 for their 280-cow operation, achieving labor savings of 30% while increasing per-cow production by 12%. “The initial investment was significant – $1.2 million,” explains Jennifer Morgan, “but our return on investment timeline has shortened from seven years to five due to rising labor costs and improved cow health metrics. Our veterinary costs have decreased by 22%, and pregnancy rates improved by eight percentage points.”
The question for many producers isn’t whether to invest in efficiency-enhancing technologies but how to finance these investments during periods of margin compression. Creative approaches to technology adoption, including shared equipment arrangements, contractor services, and staged implementation plans, may offer pathways for operations lacking the capital for comprehensive upgrades.
ASK YOURSELF: Are you investing in efficiency improvements that will keep you competitive when margins are tight, or are you hoping prices will improve before you need to change?
The Path Forward – Brutal Honesty
“The profitability of Australian dairy farming businesses was high over the 2023/24 season, but conditions were relatively favorable in some regions while others across southern Australia began to dry.” – Eliza Redfern, Dairy Australia analysis and insights manager.
For Australian dairy farmers facing these challenges, clear-eyed realism must replace wishful thinking. Comparatively high farmgate milk prices and favorable weather in some regions ensured the 2023/24 season finished strong, but the outlook is more cautious for the remainder of the current season.
Since starting the 2024/25 season, lower farmgate prices have increased margin pressure for dairy farm businesses. This has also improved the competitiveness of Australian dairy products, coinciding with export conditions strengthening and volume growth in domestic retail sales, according to the December 2024 Dairy Australia report.
Australian Dairy’s Future Trajectory
The path forward for Australian dairy appears increasingly bifurcated, with distinct “winner” and “loser” categories emerging. According to industry analyst Ross Kingwell from the Australian Export Grains Innovation Centre, “We’re seeing a hollowing out of the middle in Australian dairy. The largest operations continue to expand and capture efficiency gains, while smaller specialized operations can survive through differentiation. It’s the middle-sized conventional producers facing the greatest existential threat.”
This bifurcation is reflected in investment patterns, with large corporate farms attracting significant capital while boutique operations secure niche market positions. Traditional family-sized operations without a clear market advantage or efficiency edge face the most challenging outlook.
The path forward requires strategic thinking in several key areas:
- Efficiency maximization – With margins compressed, operational efficiency becomes even more critical. Every input must be optimized for maximum return.
- Market positioning – Commoditized milk production faces the most significant price pressure. Can you shift toward specialty products, premium components, or direct marketing?
- Financial resilience – Building cash reserves during good times to weather downturns is essential in an increasingly volatile market environment.
- Weather adaptation—With drier conditions affecting key production regions, water security, and feed strategies are becoming increasingly critical competitive advantages.
Expert Perspective: Production Strategy
ANALYST INSIGHT
“The profitability of Australian dairy farming businesses was high over the 2023/24 season, as revealed by Dairy Farm Monitor Project data. However, while conditions were relatively favorable in some regions, others across southern Australia began to dry. Feed inventories were drawn down heavily in the drier regions, contributing to the higher fodder prices seen this season.” – Eliza Redfern, Dairy Australia analysis and insights manager.
This expert assessment highlights the regional variability that creates both challenges and opportunities. Producers in regions with more favorable conditions may find expansion opportunities as others contract, while those in drier areas must focus on feed security and margin protection.
Conclusion: Adaptation Is Non-Negotiable
The Australian dairy industry in 2025 faces challenges that will accelerate the ongoing restructuring process. The key drivers affecting the industry tell a complex story:
Global Supply: Limited in the Northern Hemisphere currently but may increase with higher prices (Rabobank Dairy Quarterly Q4 2024)
Australian Market: Robust domestic demand, though potential shift with retail price pressure (Dairy Australia/IRI data, Dec 2024)
Input Costs: Rising fodder & water prices, with continued pressure in dry regions (ABARES Agricultural Outlook, Dec 2024)
Australian Production: Growing short-term (+1.7% Oct YTD) but forecast a slight drop to 8.3B liters (Dairy Australia Situation & Outlook, Dec 2024)
Global Demand: Improved price competitiveness but affected by economic restraints in China (Dairy Australia Trade Report, Dec 2024)
Farm Margins: Under pressure with continued challenges from lower prices (Dairy Farm Monitor Project, 2024)
Weather Conditions: Dry in several regions with potential improvement with rainfall (Bureau of Meteorology Seasonal Outlook, Dec 2024)
National milk production has continued to grow relative to last season in the short term. Still, without rain, the drier conditions, lower incomes, and longer-term challenges around labor and farm exits will likely hinder further increases.
“The question isn’t whether Australian dairy will change – it’s whether you’ll be one of those leading that change or one of those left behind by it. #AusDairy #AdaptOrExit”
The domestic market remains relatively robust, with retail volumes of cheese, dairy spreads, and yogurt increasing while milk holds steady. However, pressure on retail prices signals a potential shift in domestic market conditions that producers must monitor carefully.
Action Steps for Australian Dairy Producers
- Evaluate your cost structure – Identify your operation’s highest cost areas and develop specific reduction targets.
- Build financial reserves – Establish a dedicated contingency fund equal to 3-6 months of operating expenses.
- Conduct market position analysis – Determine if your milk quality and components align with the highest-value processor requirements.
- Develop a technology roadmap – Create a 3-5-year plan for strategic technology investments prioritized by ROI.
- Review succession planning – Ensure clear pathways exist for the next generation or exit strategy.
The truth is uncomfortable but necessary: Australian dairy is at a crossroads, and not every operation will survive the journey ahead. Those who approach these challenges with strategic planning, efficiency improvements, and market awareness have the best chance of surviving and eventually thriving when conditions improve.
The question isn’t whether Australian dairy will change – it’s whether you’ll lead that change or one of those left behind by it. What’s your answer?
Learn more:
- Australia’s Dairy Farmers Struggle as Major Processors Slash Milk Prices by 15%
- 55% of Aussie Dairy Farmers Eye Exit: Can Tradition and Innovation Save the Industry?
- Australia Dairy Boom: Short-Term Gains Amid Long-Term Challenges
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