🐄 Australia’s Dairy Sector Enters 2025/26 Season with Strong Prices, Faces Global Uncertainty

Sydney | May 29, 2025 — As the 2025–26 dairy season begins, Australia’s dairy sector is riding a wave of strong domestic performance and resilient export returns, despite the looming challenges of global economic uncertainty and trade disruptions, according to Rabobank’s latest Australian Dairy Market Outlook.

The report, published by the bank’s RaboResearch division, points to cautious optimism across the industry, supported by firm commodity prices, a lower Australian dollar, and rising incomes. However, flat milk production and uncertain seasonal conditions remain critical risks.

📈 Key Highlights from the Report

• Export Growth:

• Cheese and whey exports are up 23% year-on-year (as of May 2025).
• Skim milk powder and butter exports are up 6%.
• Domestic Pricing:
  Despite mild deflation in retail dairy prices, farmgate returns remain elevated, particularly in southern regions. Farmgate milk prices could exceed AUD 9/kg MS (~USD 5.77), said Michael Harvey, Senior Dairy Analyst at Rabobank.
• Currency Advantage:
  A weaker Australian dollar, currently 5% down year-on-year, is boosting export competitiveness, particularly in Asian markets.

🌦️ Milk Production Outlook: A Seasonal Balancing Act

National milk production remained flat through March 2025, with dry conditions in western Victoria, South Australia, and Tasmania hampering output. Without significant seasonal recovery, output may decline in the upcoming season.

“Setting prices will require a delicate balancing act,” Harvey noted, “as processors must weigh global volatility against solid domestic fundamentals.”

🌍 Global Trade Tensions: Ripple Effects on Dairy Flows

The report warns that escalating trade tensions between the U.S. and EU are reshaping global dairy flows:

• New U.S. tariffs on European cheese are expected to redirect EU volumes to other regions.
• While Australia’s direct exposure to tariff measures remains low, overall market disruptions may dampen global demand, particularly in key Asian export destinations.

🛒 Domestic Demand & Retail Trends

On the home front, dairy was the only food category to record price deflation in Australia’s latest Consumer Price Index. With cost-of-living pressures intensifying, shoppers are turning to discounted, value-driven options—especially among low- and middle-income households.

These consumption shifts could influence retail strategies and product positioning, especially for value-added and branded dairy products.

🧭 Strategic Outlook: Innovation and Export Readiness Key to Resilience

While short-term uncertainties persist, Australia’s dairy industry remains fundamentally strong, with long-term growth tied to:

• Product diversification (e.g., cheese, SMP, whey)
• Export expansion into Southeast Asia and the Middle East
• Sustainable production practices to manage climate and feed risks