SYDNEY, May 29 (Xinhua) -- Australia's dairy industry is entering the 2025/26 season on solid domestic footing, supported by strong commodity prices and firm export returns. However, global trade tensions and economic uncertainty are clouding the outlook, according to a new industry report.
Rabobank's latest Australian Dairy Market Outlook, released on Wednesday by its RaboResearch division, points to cautious optimism. While inflation is moderating and incomes are expected to rise, subdued consumer sentiment is likely to persist through 2025.
Milk production remains a key risk for the sector. Ongoing dry conditions in western Victoria, South Australia, and Tasmania have constrained output, with national milk production flat year-on-year through March. Without a shift in seasonal conditions, the bank warns of a high likelihood of production decline in the coming season.
The report highlights significant year-on-year gains in key dairy export commodities. As of May 2025, cheese and whey exports are up 23 percent, while skim milk powder and butter exports have risen by 6 percent.
Despite mild deflationary pressures, domestic returns for dairy producers remain elevated. Rabobank senior dairy analyst Michael Harvey said these market fundamentals support stronger farmgate prices, potentially exceeding nine Australian dollars (5.77 U.S. dollars) per kilogram of milk solids in southern Australia.
Still, Harvey cautioned that setting milk prices will require a "delicate balancing act" as processors navigate uncertain global conditions.
"Recent tariff measures introduced by the U.S. administration have unsettled many international markets," he said. While Australia's direct exposure is limited, broader disruptions could weaken demand both at home and in key export destinations.
The report also notes that a weaker Australian dollar, currently trading around 5 percent lower year-on-year, offers a competitive edge for dairy exporters by supporting higher export returns.
Meanwhile, escalating trade tensions between the United States and European Union are reshaping global dairy flows. Newly imposed U.S. tariffs on EU cheese exports are expected to reduce shipments to the American market, prompting a reallocation of volumes to other regions. The impact on Australian exporters, however, is likely to be limited, the report said.
On the domestic front, the report points to shifting consumer behavior amid ongoing cost-of-living pressures. Dairy was the only food category to record mild price deflation in the latest Consumer Price Index. Increased discounting and value-driven shopping are becoming more common, particularly among low- and middle-income households. ■
