Health conscious nation drives $4bn dairy boon

It is expected milk and milk alternatives, including soy and grain milk, will post healthy annual revenue growth over the next five years to reach $4.2 billion by 2019-20. Between 2014-15 and 2019-20, revenue across all categories is forecast to grow by an annualised 3.9 per cent.

In 2014-15, IBISWorld expects that the average Australian will consume 106.8 litres of cow's milk – and a growing volume of alternatives, such as soy and rice milk.

On a state-by-state basis, South Australia consumes the greatest amount of cow's milk per capita at 135.3 litres each per year, followed by Tasmania (126.5 litres), Queensland and the Northern Territory (119.4 litres), Western Australia (114.5 litres), Victoria (105.3 litres), and New South Wales (99.1 litres).

"Increasing consumer health consciousness, the continuing promotion of the benefits of milk and dairy, and the diversification of tastes as new milk alternatives emerge are all driving a gradual increase in milk consumption and revenue for the industry," said IBISWorld Australia General Manager Daniel Ruthven.

Milk alternatives – which include soy and grain milk – have posted significant growth in the past few years. This popularity has been driven by growing demand for health food products that are perceived to be low in fat while offering higher levels of protein, essential minerals and iron.

"While they were previously confined to health food stores, milk alternatives are increasingly becoming a mainstay in supermarkets and cafes. Many coffee shops – particularly those in urban centres – are now offering milk options as diverse as almond, soy, rice or even quinoa milk," said Ruthven.

Milk Consumption

Industry Revenue and Growth

Udder delights

Milk and cream processing has been through a tumultuous period over the past five years due to inclement weather conditions. The industry is expected to benefit from new investment capital over the next five years, which is projected to drive revenue growth of an annualised 4.4 per cent to reach more than $2.4 billion in 2019-20.

"The industry is dependent on good weather conditions for reliable access to affordable dairy cattle feed. Weather volatility and supply chain pressures have both contributed to the slowing of revenue over the past five years," said Ruthven.

Prosperity in powder

Like milk and cream processing, milk powder processing has endured production constraints due to its dependence on weather variables. However, strong export demand has kept the industry buoyant and increased the price premium for Australian milk powders overseas. IBISWorld expects that 70 per cent to 75 per cent of Australian milk powder is bound for overseas markets. The industry's revenue is forecast to increase by an annualised 3.1 per cent over the next five years, to reach $1.6 billion in 2019-20.

Cream of the crop

The soy and almond milk production industry posted substantial annualised growth of 5.9 per cent between 2009-10 and 2014-15, due to growing health awareness and the industry's lesser dependence on good weather conditions. Above average growth of an annualised 4.3 per cent is expected through 2019-20.

"While traditional dairy products are high in calcium, they are also high in cholesterol. Soy milk, almond milk and other plant-based dairy alternatives are typically protein-rich and low in fat and sodium, making them appealing to health-conscious Australians," said Ruthven.

White gold

Australian agricultural exports, including fresh, long-life and dehydrated milk, are worth more than $38.0 billion to the Australian economy per annum. As Asia's population continues to grow, IBISWorld anticipates that Australian farmers will target growing overseas markets, exporting more food and drink products.

Emerging markets have traditionally been key destinations of dehydrated and UHT milk produced by the Australian dairy industry, due largely to the absence of established dairy industries in key Asian export markets.

"Australian dairy farmers typically produce far in excess of our nation's needs. Fresh milk has largely been unsuitable for export, as it has a short shelf life, but we are increasingly seeing examples of milk being airfreighted to Asian markets. Traditionally, fresh milk has been processed to make cheese, or dehydrated to make milk powder," said Ruthven.

"The growing demand for quality dairy products, including milk, in Asia has been most recently demonstrated with initial shipments of fast-tracked fresh milk to China. Since early 2014, dairy co-op Norco has transported drinking milk to Chinese consumers within seven days via airfreight. This is a remarkable development for the just-in-time model, particularly considering that it previously took 21 days for milk products to pass Chinese quarantine," said Ruthven.

Free trade agreements

IBISWorld expects that free trade agreements secured during 2014 with Japan and Korea will increase demand for Australian dairy products. The Australian dairy exporting industry is already low-cost and highly efficient, yielding very high volumes of milk per cow.

"Further free trade agreements, including the Trans-Pacific Partnership Agreement and the bilateral agreement with China, are expected to boost Australia's exports of milk and milk products," said Ruthven.

"Despite significant progress being made with China, the country maintains substantial trade barriers.

"It has demonstrated a willingness to negotiate on reducing some tariffs following a 2008 trade agreement with the world's largest dairy exporter, New Zealand.

"A similar agreement between Australia and China could hold the promise of an incredibly valuable – and increasingly wealthy – market for our exporting dairy farmers."

As the Asian middle class grows in size and economic strength, IBISWorld expects increasingly strong demand for Australian dairy products from the top four foreign markets – China, Singapore, Indonesia and Malaysia.