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SYDNEY - The Australian dairy industry has predicted a 7 per cent drop in milk production this financial year as farmers struggle against drought.
Dairy Australia managing director Mike Ginnivan said: "Six months ago, the company had forecast at least 10 billion litres of milk for the year and we budgeted accordingly. Our early forecast is for a drop of about 7 per cent but it is difficult to estimate."
The drought would also affect the company's immediate future, Ginnivan told the annual meeting, with a drop in milk production affecting levies paid to it by farmers.
"Today much of the industry is operating in drought and there is a less positive outlook."
He said the firm must reprioritise its services to reflect lower income, and direct funds to drought resistance.
"We have developed new processes for better allocating resources across the whole value chain for gains now and in the future. We begin that process by asking ourselves if the expenditure we're making is for the benefit of levy payers."
Ginnivan said Dairy Australia had already redirected funds to help to lead a A$1.5 million drought response.
At the meeting the company recommended that the levy paid to it by industry holders be frozen when dairy farmers vote next year.
In February and March farmers will decide whether to abolish, maintain or increase the levy amount of approximately A0.315c a litre.
But the Australian newspaper reported that funds invested in the Australian Government's farm management deposits rose last financial year despite a fourth year of drought.
The amount deposited nationwide rose by A$4.27 million to A$2.8 billion at June 30, with dairy and beef farmers increasing their deposits, while grain and sheep farmers drew down their deposits.
About 40 per cent of Australian farmers now hold farm management deposits, which allow them to deposit money, untaxed, in a good year and withdraw it and pay tax in a bad year.
The deposits earn commercial interest rates and must be kept for at least 12 months - except if the farmer is in a drought-declared area.
Deposits are capped at A$300,000. Dairy farmer deposits rose A$23.4 million, but grain specialists and mixed grain, sheep and beef farmers drew down their deposits by more than A$100 million.
Professor Bill Bailey, a former New Zealand academic who chairs the agriculture faculty at Western Illinois University in the United States, said international dairy markets would continue to closely watch Australian weather in search of a potential upturn in milk supply if the rains returned to Victoria.
He noted in the ASB commodities report that US Government officials were forecasting New Zealand dairy production would reach a record 15.4 million tonnes for the 2006-7 season. This would be a 1 per cent increase over last season, a production year that also set a record.
The modest increase is reported to be a function of more cows being milked rather than productivity improvements, despite continued and aggressive efforts to boost productivity per cow.
"While it is difficult to be critical of an industry that sets production records two years in a row, the extremely modest growth does raise the question that, perhaps, New Zealand's pastoral dairy system may be reaching its limits of growth."
- AAP
