Australia’s only listed dairy farmer, Australian Dairy Farms Group, says the free trade agreement with China should boost farmers’ profits and make their properties more valuable, but the effect won’t be immediate.
ADFG director Adrian Rowley said lower tariffs under the FTA would increase Chinese demand for Australian dairy products and investment in dairy farms.
Mr Rowley said dairy processors are already trying to increase milk supply milk by offering volume bonuses to farmers.
“This (the FTA) will just accelerate that,” he said.
“The growth in the export market into China without tariffs will enable a better margin for processors, which should flow through to a better end price for the farmers.
“That makes the farm operations more profitable and the dairy assets more attractive from an investment perspective.”
However the benefits of the FTA would take time to flow through as tariffs will be unwound over a fairly long period, and it takes time to increase dairy production, he said.
“It’s not that easy. It’s not like crops where you can plant an extra few thousand hectares. It takes time to ramp up milk production,” Mr Rowley said.
“As far as a pull-through on the price because of a growing export market, that may take a few years.”
The FTA would probably push up dairy property prices too, but that would also take time given a pent-up supply of farms.
“I still think there’s a 12 to 18 month window of opportunity to buy theses assets at attractive prices, although they’re not cheap,” he said.
Mr Rowley acknowledged the excitement about the FTA but warned no one should expect immediate benefits.
In past times of excitement, the dairy sector has been overcapitalised, taken on too much debt and infrastructure, and milk remained a highly cyclical commodity.
“So, even though the FTA’s in place, there’s nothing to say that the milk price won’t be lower next year than it was this year,” he said.