Australians pay $3.10 for milk while farmers earn $2.46/hour – 15% price cuts drive production to 30-year lows, threatening industry survival.
EXECUTIVE SUMMARY: Australia’s dairy industry faces collapse as farmers endure 10-15% farmgate price cuts despite consumers paying record retail prices. Milk production is projected to hit 8.3 billion liters in 2024/25 – a 30-year low – with feed costs soaring 40% since 2022 and 55% of farmers considering exit. Processors like Fonterra and Saputo cite import competition (up 19%) and China’s shrinking imports, while aging farmers battle droughts and corporate consolidation. Young operators (<6% under 35) face impossible margins: earning $2.46/hour while retail milk hits $3.10/liter. Though some adapt with robotics and value-added products, ACCC warnings of power imbalances and 10 processing plant closures signal systemic failure without urgent reform.
KEY TAKEAWAYS
- Farmers strangled: 15% milk price cuts + 40% feed cost surge = $2.46/hour earnings despite $3.10/liter retail milk prices.
- Production collapse: Forecast 8.3B liters in 2024/25 – lowest since 1990s – with 30% fewer farms since 2014.
- Global squeeze: Australian exports drop 17% as China grows domestic production; imports surge 19% from NZ.
- Youth exodus: Under-35 farmers now 6% of industry – lowest ever recorded.
- Adapt or perish: Survivors use robotics, value-added cheeses, and water rights – but need ACCC-mandated pricing reforms to scale.
The Australian dairy industry faces a perfect storm in 2025: declining production, price volatility, and structural challenges threaten its future. Who will survive as the gap between boardroom optimism and farmgate reality widens?
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.
The Human Cost: Farmer Wellbeing at Breaking Point
The financial strain facing dairy farmers has created a significant human cost that often goes unrecognized. Many dairy farmers are exhausted, demotivated, and struggling to make ends meet while sacrificing time with families and friends. Their mental and physical health suffers as they work increasingly more extended hours to maintain production with fewer resources.
A recent Curtin University study revealed that 55% of surveyed farmers expressed discontent with the sector. Financial strain and mental health issues have prompted many to contemplate leaving the industry altogether.
“I’m just having a bad time, can’t find staff, I’m just over it. Too long hours, not enough family time.” – Victorian dairy farmer
“We are thinking about getting out since what’s the point of working 7 days a week and going bankrupt and being stressed all the time.” – Victorian dairy farmer.
The psychological burden of operating in such an uncertain environment takes a severe toll, mainly when farmers see market improvements that never translate to their bank accounts. The gap between optimistic industry forecasts and the harsh farm-level reality widens in 2025, adding to farmers’ frustration and sense of abandonment.
Weather and Cost Pressures: A Perfect Storm
Persistent dry weather conditions across key production regions have compounded financial pressures by increasing feed costs. The industry has faced a perfect storm of challenges, including the lingering effects of a severe drought about ten years ago, difficulties finding farm workers, rising farmland costs, and the constant threat of extreme weather events.
According to the Curtin University study, feed costs have surged by 40% since 2022. Meanwhile, stagnant milk prices have resulted in unsustainable profit margins for 89.8% of the farmers surveyed. This cost-price squeeze leaves farmers with little room to maneuver or invest in their operations.
This situation is unjust because favorable seasonal conditions are sometimes used as justification for paying dairy farmers less, despite the significant risks farmers take to produce high-quality milk regardless of weather conditions. When seasonal conditions deteriorate, as in many regions, input costs soar, yet farmgate prices rarely respond proportionately.
“Not enough water, not enough feed.” – NSW dairy farmer
“Arid conditions, lack of grown feed is the main impact.” – Victorian dairy farmer
“At the moment, it’s tough because of the drought. Having to buy hay is enormously expensive.” – Queensland dairy farmer
The saying goes, “Make hay while the sun shines,” yet Australian farmers see no benefit while the sun is shining on dairy products globally. With input costs soaring due to dry conditions across Australia, farmers face unprecedented challenges that threaten their survival.
Import Challenge: The Competitive Squeeze
Compounding these pricing pressures is the growing challenge of imports. Fonterra Australia’s managing director, Rene Dedonker, noted that while domestic milk sales perform well, their cheese and butter sales suffer due to large volumes of cheaper imports.
Dairy Australia statistics reveal that imports of dairy products have nearly tripled over the past two decades and continue to rise, placing additional downward pressure on domestic prices. Recent data shows Australian exports have dropped by 17% whilst imports have increased by 19%, creating a concerning trade imbalance.
Once a reliable export destination, the Chinese market has also changed dramatically. “Production in China grew by 8 billion liters, and the industry will continue to grow because of government investment,” noted Matt Watt, Farm Source’s director (a Fonterra division). “This reduces their need to import.”
These international market shifts have left Australian dairy farmers increasingly dependent on the domestic market, where they face intense competition from imported products that often don’t meet the same quality and sustainability standards.
Industry Structure: Winners, Losers, and Demographic Challenges
The Australian dairy industry is undergoing significant structural changes that favor specific business models while threatening others. Industry consolidation is accelerating, favoring large-scale operations and specialized boutique producers while squeezing mid-sized conventional farms. This bifurcation of the industry creates clear winners and losers, with traditional family farms often falling into the latter category.
Demographics present another critical challenge. Due to recent difficulties and an uncertain future, young people are showing little interest in entering the dairy sector. This demographic shift threatens the industry’s long-term viability as experienced farmers retire without successors to continue operations.
The number of dairy farms has fallen from 6,308 in 2014 to just 4,420 by 2022, a staggering 30% reduction in less than a decade. Even more concerning, individuals under 35 now account for a mere 6% of the industry, indicating a notable exodus of youth and raising serious questions about the sector’s future.
Technology and Innovation: A Path Forward?
Despite the challenges, technological advancements offer potential pathways for the industry’s future. According to Andrew Schmetzer of NOVUS, Australia’s industry is embracing new dairy management methods, such as freestall barn housing and robotic milking systems. These technologies optimize herd management and address labor inefficiencies, which are critical for sustainability in a labor-intensive industry like dairy farming.
Victorian scientists are also working on reducing the Australian dairy cow’s environmental footprint and creating a more profitable and sustainable dairy sector. The government of Victoria has launched a US$41 million, five-year research partnership with the dairy industry as part of its Transformational Agriculture Strategy. The forage program focuses on F1 hybrids and gene editing, while the animal program focuses on new traits and improved selection.
The Future Forage Programme will develop new and improve existing forage varieties and species to support the dairy industry as farm systems change and adapt to climate variability and volatility. The Future Cows program will focus on farmer-selected traits and breeding priorities and will use advances in animal monitoring to provide new tools for profitable adaptation to future farms.
“The cows of tomorrow will have lower methane emissions per liter of milk produced, and they will live longer, produce healthier calves, have good metabolic efficiency and low maintenance requirements,” says Professor Jennie Pryce of Agriculture Australia, who is leading the DairyBio animal program. “These cows may not look much different to the cows you see today, but they’ll be more profitable for dairy farmers for a longer time.”
According to the program, dairy farmers should gain US$248 per cow in the future developed cows. Their emissions should be reduced by 10%. The cows will also be able to adapt to warming faster. They should have a 10% greater lifespan by 2040, and the health and management costs should be reduced by 10%.
While these technological advances offer hope, the question remains whether farmers will have the financial capacity to invest in these innovations given their current economic pressures.
Market Opportunities: Consumer Preferences Shift
Despite the challenges, essential market opportunities exist for Australian dairy. Australian consumers increasingly prefer high-quality, locally produced dairy products and a willingness to pay premium prices to support local farmers. The domestic market remains robust, with growth in cheese, dairy spreads, and yogurt sales offsetting flat milk demand.
Rafael Guerrero of NOVUS notes that the industry is shifting toward value-added products like cheese and yogurt. As global markets demand premium dairy goods, Australian farmers adapt by focusing on milk solids rather than just volume. This pivot increases profitability and ensures resilience against market fluctuation.
This consumer sentiment represents a potential lifeline for the industry if it can be effectively leveraged through marketing, product innovation, and transparent supply chains that connect consumers directly with producers. However, capitalizing on these opportunities requires investment capacity that many farmers lack due to compressed margins.
The Bottom Line: Critical Crossroads for Australian Dairy
Australian dairy stands at a critical crossroads as the industry approaches the 2025/26 opening price announcements. In the coming months, the decisions made by processors will send powerful signals about whether they truly value a sustainable domestic supply base or are content to rely increasingly on imports while the local industry contracts.
The central question for farmers contemplating their future is whether the industry will finally recognize and reward their essential role in the supply chain. Without meaningful changes to pricing models that reflect global market improvements and account for rising production costs, the exodus from dairy farming will likely accelerate, further threatening Australia’s century-old tradition of dairy excellence.
Successful producers increasingly focus on efficiency gains, diversification, and targeted technology investments to weather the current storm. Water security has become a critical factor in farm sustainability, with forward-thinking operators investing in irrigation infrastructure and water rights to mitigate climate variability.
Policy support is also essential. Industry bodies are calling for more comprehensive support and policy changes to help farmers with technology adoption, sustainable farming practices, and mental health resources. These initiatives must be coupled with efforts to address the structural imbalances in the supply chain that prevent farmers from capturing a fair share of the final product value.
The Australian dairy industry has shown remarkable resilience throughout its history, but the current challenges are testing this resilience like never before. 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.
As one of Australia’s most iconic agricultural sectors, dairy deserves better—not just for the farmers who pour their lives into it but also for consumers who value local production and the rural communities that depend on its continued viability.
Read more:
- April 2025 Dairy Risk Management Calendar
Explore strategies to mitigate crashing milk prices and feed cost volatility, including component-focused culling and futures hedging, critical for farmers navigating 2025’s margin squeeze. - Global Dairy Market Trends 2025: European Decline, US Expansion Reshaping Industry Landscape
Analyzes how EU production declines and US expansion impact global trade dynamics, offering context for Australia’s export challenges and import competition. - Australia’s Dairy Crisis: Tough Truths Behind 2025’s Production Decline
The foundational piece detailing Australia’s 8.3 B-liter production collapse, demographic exodus, and survival strategies for farmers.
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