Production economics: Dairy sector/industry
The Australian Dairy Industry forms the bedrock of this discussion. It is a small milk producer yet the third largest exporter of the dairy globally as fifty percent of its production is exported. The dairy industry in Australian remains the third hugest rural industry which ranks behind wheat and beef, and the industry has a value of about four billion. The country produces an array of dairy products comprising milk, yoghurt, milk powder, cheese as well as butter. The dairy industry is concentrated in south-east of the country with Victoria being the largest production state, nevertheless, additional states have substantial dairy industries.
The production of Victorian state is characteristically seasonal as well as enters the export market that makes it exposed to volatile international prices. Additional dairy production areas that is much NSW supply the local market that needs year-round production. The industry remains heavily dependent on water available; the sector is presently facing uncertainty over supply of water. Right from the year 2001, the dairy industry has undergone serious rationalisation thereby leaving a central of effective and efficient producers that can compete against the global competitors who remain heavily subsidized.
In this essay, the above agricultural industry is chosen in Australia to present its description providing a detailed overview of production in the industry over a period as well as identifying the key factors influencing the its production alongside demand. This include from government, international markets as well as additional macro-economic sources. Further, a detailed summary of how the industry productivity is measured is presented together with the key factors that influence the dairy productivity. Finally, an identification where feasible the factors that affect growth of productivity in this sector, together with how such factors compare to productivity growth trends in overall in Australia is presented.
Description of Dairy Sector
Australian dairy sector is a thirteen billion dollars farm, manufacturing as well as exporting industry. The industry with a farmgate value along of four billion dollars enriches the regional Australian communities. More than six thousand dairy farmers are producing about 9.70 billion litres of milk yearly. The industry hires directly forty thousand Australians on the farms as well as in numerous factories, whereas over one-hundred thousand Australian are employed indirectly in the associated service industries. The industry further remains among the leading industries in Australia with respect to value addition via downstream processing. A great proportion of this processing takes place close to the farming regions hence generating the economic activities in the regions of Australia.
Dairying in Australia remains a well-established crossways temperature as well as certain subtropical regions of the country. Whereas the bulk of the milk production happens in the south-east states, all the states have the dairy industries supplying fresh drinking milk to the neighbouring cities as well as towns. An array of high-quality consumer commodities comprising fresh milks, yoghurts, custards, as well as a vast range of cheese kinds, are produced in the most of the states in Australia. However, the manufacturing of the longer shelf commodities including cheese as well as specialized milk powders, is increasing becoming more concentrated in the south-east Australian regions (Gollnow et al. 2014).
Dairying industry in today’s Australia continues to be significant rural industry of the country. On-farm productivity has increased progressively via the enhanced pasture alongside feed besides herd management techniques. Whereas supplementary feeding with the grains is increasingly becoming common, the dairy industry in Australia stays predominantly pasture-oriented (Byrne et al. 2015). Each state with the Victorian state being the most dominant have the viable milk productions do supply milk to the neighbouring cities as well as towns. The industry remains the major regional employer thereby value-adding via the milk processing to produce fresh lines including cream, butter, yoghurt as well as cheese. Bulk milk alongside specialized powdered milks are further important.
Overview of Dairy Sector
The dairy industry remains the third largest rural industry. Over 13.70 billion is the value of the farm, manufacturing as well as export in the dairy industry. Over 3,043,000 tonnes of milk is being produced in Australia including the drinking milk is generated for the local or domestic market. The dairy export takes a huge chunk of the milk produced since 34% of the Australian milk produced was exported in the year 2015/2016. This has generated over three billion of export revenue in the 2015/2016 and six percent of the dairy trade is drawn from Australia.
The dairy industry’s workforce is approximately 38,000 individuals as direct employees in the dairy industry. The milk utilization include 26% (drinking milk), 29% (skim milk/butter milk powder), and 6% (whole milk powder). The milk production is over 9,539 million litres with the average yearly milk production a cow is around 5,669 and the average herd size is 273 cows with 1.66 million cows showcase national dairy herd. The yearly per capita consumption of the milk include 105 litres (drinking milk), 13.90 kilogram (cheese). The yearly production of main products including 321,900 tonnes of milk powders, 344,300 tonnes of cheese as well as 118,600 tonnes of butter. The dairy industry’s serves major markets for its dairy products including 61,000 tonnes (Indonesia), 178,000 tonnes (Greater China), 82, 800 tonnes (Singapore), 103, 100 tonnes (Japan) and 58,150 tonnes (Malaysia).
Key Factors Influence Dairy Production and Demand
The milk production of Australia dropped approximately 190 million litres, or twenty percent to 9.540 billion in 2015/2016-reflecting both the hard seasonal conditions and the sudden price step-downs later in season. Despite seasonal conditions being originally favourable, the dry Spring as well as the delayed autumn break crossways much of southeast increased cost of input and limited production. Accordingly, the national milk production was already down 1.10% YTD prior to late season step downs being declared in April. The production in also influenced by pasture and hence a pasture-oriented industry. This explains why is concentrated in the temperate zones of the country (Mialon et al. 2016).
The milk production in Australian stays firmly seasonal in key south-east dairying further that the industry is predominantly pasture-based. The peaks in milk production take place in October and taping off till late-summer, and subsequently flattening into cooler months of winter. The long shelf-life manufactured commodities production in such regions of Australia has enabled maximum utilization of milk within seasonal cycle. Nevertheless, milk output seasonality in New South Wales, Queensland and Western Australia remains much less erected, because of greater attention on drinking milk as well as fresh milk commodities in such states (McLachlan 2013).
(i) International Sources
The growth in the dairy industry in the country relies greatly on the expansion of the export markets. The exports of the anticipated to continue to grow over the period, especially to Asia as well as the Middle East. The Australia dairy industry is exporting close to 50% of its milk production. This makes the sector the third hugest exporter coming after the EU and New Zealand thereby accounting for almost ten percent of the international export market. The major export market for the Australian dairy industry by value include Japan, Singapore, China, and Malaysia. The proximity of the Australia to Asia makes implies it is probably that exports to the region are probably to increase into the future as the region develops. The Australian dairy sector major products for the local market consumers include drinking milk, cheese, yoghurt and butter. The drinking milk (102 litres) remains the most famous dairy product consumed in the country followed by cheese (13kg), yoghurt (7kg) and then butter (4kg).
(ii) Government Sources
The government of Australia is instrumental in the dairy industry. The government has always intervened in this industry especially in the phase of crises. The government does this by offering concessional loans to the farmers who struggle. The government also comes in to offer regulations like dairy floor price that is needed to arrest the situation. The government had deregulated the industry over a decade ago, it is time for the government to copy other economies for their models to fix this system. The present situation facing Australian dairy industry remains the same globally. The EU and the US come to mind, as the supply of milk outweighing the demand. However, they offer assistance to their corresponding dairy farmers via subsidies or additional assistance which assists in keeping them viable.
The government of Victoria State for example, has announced additional support for the dairy industry in crises. The government had unveiled its latest raft of measures for supporting the struggling dairy farmers. The Victoria remains the home of the dairy industry in Australia thereby accounting for about seventy percent of the Australian dairy farms as well as eighty percent of the dairy exports of Australia. The government has planned in 2016 to spend about 6.7 million dollars on the programs for the business support, education support as well as up-skilling farmers. This included 1.80 million dollars in the dairy development grants to support the farmers with their won on-farm business (Australia 2014).
It further included 1.40 million dollars for the dairy farming families for receiving fifteen hours of free kindergarten in the year beforehand school. The government also support through 1.5 million dollars for the camps, sport as well as excursions so that no child could miss out. The government further support through 750,000 dollars for the rural skill connect employment scheme for the farmers. Also the government support the industry through 600,000 dollars for the targeted dairy technical assistance alongside about 320,000 dollars for the extension of rural financial counselling services to small businesses alongside via the 340,000 dollars for the rural financial counselling services to assist farming businesses as well as for the retraining via the TAFE system.
The Victorian state in May 2016 announced an 11.40 million dollars joint government alongside industry support package but further held 4.50 million dollars back. The government also takes time to make decisions on the best measures of supporting the dairy industry. Through the Dairy Australia which is the national services body for the dairy sector, the government assists farmers adapt to altering operating environments, and accomplish a profitable, sustainable dairy sector. The Dairy Education Australia also helps the farmers through its education and information resource with the info for the primary school teachers as well as students, info from National Centre for Dairy Education Australia as well as practical info on the Dairy Farming Victoria (Buys et al. 2014).
(iii) Macro-economic sources
The liberalized feature of the dairy industry in Australia puts the sector in a favourable stance relative to many of its rivals. This liberalization has seen the Australian dairy industry developing efficient techniques of production alongside strong herd genetics. The SWOT analysis of the dairy can portray certain challenges of this industry as well as the opportunities that accounts for the favourable position of the industry relative to its rivals. Some of the strengths of the industry include efficient productions methods, well-positioned for strong growth in exports and being a major exporter. Some of the weaknesses include volatile climate, buy retail sell wholesale and policy uncertainty. The opportunities include management of production risks, increased demand from Asia, and attaining greater efficiencies. The threats include input prices, protectionism in the rival markets as well as climate change (Sheng et al. 2016).
The productivity of the dairy industry production is under the mandate of the ABARES (Australian Bureau of Agricultural and Resource Economics and Sciences) which gives the estimates of productivity. The total factor productivity growth has been used in the dairy sector when measuring productivity growth in agriculture comprising up-to-date empirical analysis for the developing and developed economies as well as the regions thereby providing a response to the increasing international scarcity of agricultural production.
Key Factors Influencing Productivity and Productivity Growth
The dairy industry productivity is influenced by a number of factors. The first one is the health of herds or cows that produce the milk. These cows needs purchased feed which remains the hugest single cost item for many producers, characteristically representing about thirty percent of individual farm’s cash costs. Because of the global nature of the grain markets, the feed cost are influenced upon by the global crop prices hence influencing dairy productivity (Australia 2014).
Corn is also a key feedstock in additional parts of the world. The prices of corn has remained pushed up by the fact that forty percent of the US production is utilized by ethanol industry. The corn thus affects the feed grain prices since it is the largest global crop. Hence, dairy input cost are influenced by the global prices of corn which is then reflected in productivity.
The Australian dairy industry is focused on genetic progress heavily. It is also influenced by the artificial insemination (AI) because it is intensive. The ABS alongside Semex are the major providers of semen straws hence the quality of the services is reflected in the dairy productivity. These companies used sires that are sources from around the globe thereby giving Australian producers access to the best genetics internationally which is then manifested in better productivity. This is because the production is lifted substantially by these genetics as herds using these AI vastly overall average more than 1,000 litres additional milk a cow a year then those that do not.
Fertilizer is also a major influencer of productivity for most dairy farms to support the growth of the quality pasture. This amounts to about ten percent of the cash costs of the dairy farmers and hence influencing productivity. Major suppliers of in the country are Hi-Fert and Incetic Pivot and hence the dairy productivity is dependent on these companies. This is because pasture’s significance makes the agronomy significant in maximizing dairy production (Australia 2005).
Dairy Australia also affects the productivity by being a R&D corporation thereby servicing the dairy sector by commissioning essential studies that give required progress to dairy sector. By emphasizing on market development, market maintenance and operations as well as Australian dairy promotion informs the productivity.
Comparing Factors Affecting Productivity Growth Overal in Australia
The factors that affect the dairy industry productivity are somewhat distinct and unique compared to the overal factors in the country. As has been seen, AI is a major factor that informs the productivity in the country and this is quite distinct to the dairy industry. Also, the Dairy Australia is also unique to the dairy industry compares to other industries in the country. Also, pasture is important to the dairy industry and this is similar to beef industry (Yu and Maeda 2017).
The dairy industry in Australia is a key contributor the country GDP since it the third major agricultural industry. The industry export almost fifty percent of the entire production of milk to the global market accounting for ten percent of the milk globally. This makes the country receive more money in terms of export which is good for the economy. With the increasing demand from the developing Asian market, it is expected that dairy export will progressively contribute to the economic development of Australia.
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