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Unilever Sustainable Sourcing Meeting 27 August 2012. Agribusiness Breakfast. Fig 4.2 – ABARES farm performance (avg per farm). Rebalancing the supply chain. “Two speed” industry – export vs domestic regions Weaker pricing due to commodity price falls.
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Unilever Sustainable Sourcing Meeting 27 August 2012 Agribusiness Breakfast Fig 4.2 – ABARES farm performance (avg per farm)
Rebalancing the supply chain • “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 water Inputs Milk production Export Processing/ manufacturing Marketing Retail supplements Dist’n Import Food service • Rising grain prices • Limited supply of cows and heifers • Clearing stocks for exporters as prices weaken • Strong competition for milk in southern region remains • Pressure on domestic profit margins • Consumers value focussed • Retailers competing on price
Changes required from major exporters 2011 to 2021(meq mill litres)
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 Current Australian market settings Weekly printed promotions of dairy products by grocery chains
Australian market trends- volume sales until end of June 2012
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 Farmgate market outlook for 2012/13
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
Significant differences between regions Positive attitude to industry future by region (% farms) Source: National Dairy Farmer Survey 2005-2012
% farms intending to invest in next 12 months (comparing 2009 - 2012 surveys)
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.au Next update: 12 September