Financial performance of dairy farms

• After deregulation of Australian milk marketing arrangements in July 2000, average farm cash incomes on dairy farms were highly variable from year to year, as Australian farmgate milk prices aligned more closely to (more volatile) global dairy product prices (Figure 1).
• Severe droughts and fluctuating prices for fodder and irrigation water also contributed to more volatile dairy farm incomes in the post deregulation period.
• Prior to deregulation, average dairy farm cash incomes were less variable from year to year, reflecting the smoothing effect of regulated farmgate prices for milk used in the drinking milk sector.
• The recent increases in dairy farm incomes are a major and welcome change for an industry that has otherwise endured more than two decades of incomes that fluctuated widely around a steady trend.

Figure 1 Long term trend in farm cash income, dairy farms, Australia, 1978–79 to 2023–24
average per farm

• The more recent trend towards higher average farm cash incomes shown in Figure 1 reflects structural changes in the dairy sector following deregulation that has resulted in fewer but larger farms.
• In 1980 there were just over 20,000 dairy farms in Australia, but by 2023 that number had fallen to just under 5,000 – a decline of around 80% (Figure 2). The decline in the number of broadacre farms in Australian over the same period was 55%.
• In terms of farm size or scale, the average size of dairy herds has increased from 147 in 1978–79 to 534 in 2022–23, while the annual volume of milk produced per farm increased from just over 280,000 litres per farm to just over 1.86 million litres per farm – an increase of 570% (Figure 2).

Figure 2 Farm numbers and average dairy herd sizes in Australia, 1978–79 to 2022–23

• The long term trend towards fewer but larger dairy farms was consistent across all states, although in the post deregulation period (that is, in the period since 2001–02) farm numbers have fallen by the most (in percentage terms) in Queensland and the least in Tasmania (Figure 3). In Queensland, production fell by 63% and Queensland’s share of national milk production fell from 7% in 2001–02 to 3% in 2023–24.

Figure 3 Change in the number of dairy farms from 2001–02 to 2022–23

• Aggregate milk production in Australia peaked in 2001–02 at around 11.3 billion litres, but has since trended downward to reach 8.3 billion litres in 2023–24— a decline of 26% (Figure 4).

Figure 4 Australian milk production, 1978–79 to 2023–24

• At the regional level, there have been large declines in the numbers of dairy farms in the inland irrigated regions of northern Victoria and south–western New South Wales, and consequent reductions in total milk production from these regions.
• Farm exits in northern Victoria contributed to a major decline in milk production from this region, which was equivalent to nearly half the total decline in Australian milk production between 2001–02 and 2023-24 (Figure 5).
• Northern Victoria was Australia’s largest milk producing region in 2001–02, accounting for 27% of all milk produced in that year. By 2023–24 this share had fallen to 18%.
• The decline in milk production in Northern Victoria was partly a response to pressures from increased irrigation water prices associated with the Millenium drought and greater competition for water from other farm sectors (including horticulture and irrigated broadacre cropping). A sustained period of historically low farmgate milk prices in the early 2000s was also a factor.
• Tasmania is the only milk producing state to record an increase in aggregate milk production in the post-deregulation period. Between 2001–02 and 2023–24, aggregate milk production in Tasmania increased by 39%, and Tasmania’s share of national milk production increased from 6% to 11%. On current trends, Tasmania may soon overtake New South Wales to become Australia’s second largest milk producing state.

Figure 5 Change in aggregate milk production between 2001–02 and 2023–24, by region
ML

Figure 6 Regional shares of Australian milk production

Key changes to dairy farm characteristics and practices

• Two main factors are driving the long term increase in the average volume of milk produced per farm: increases in the average size of dairy herds; and increases in the volume of milk produced per cow.
• Increases in average herd sizes have been facilitated by a range of technology changes and developments in automation including more efficient milking shed designs, automated feeding systems, cheaper and more powerful farm equipment, and cheaper and more powerful computer hardware and software, particularly in relation to herd management.
• In the early 1980s over a quarter of dairy farms used ‘walk-through’ dairy sheds, a traditional but comparatively slow system that could not easily be scaled up. Today nearly all dairy farms use herringbone or rotary milking systems, with some using fully automatic (‘robot’) milking technologies.
• Increases in milk production per cow are being driven by two main factors: improved livestock genetics arising from artificial insemination (AI) and herd recording; and increased use of supplementary feeding.
• In relation to herd genetics, the proportion of dairy farms that use AI increased from less than 50% in the early 1980s to over 80% today.
• In relation to supplementary feeding, the average expenditure by dairy farmers on fodder increased from $60 per head in 1978–79 to over $600 per head in 2022–23 – a ten-fold increase in real terms (Figure 7).
• The trend to more intensive use of purchased fodder has, however, exposed dairy farms to the adverse effects of drought, when demand for fodder is typically high (due to reduced pasture availability) and fodder prices are high. This occurred during the Millenium drought, when average expenditure on fodder increased to nearly $850 per head (Figure 7).

Figure 7 Fodder cost per head, 1978–79 to 2022–23
average per farm

• Modern dairy farmers are also more dependent on hired labour than previous generations. This adds to their personnel management challenges as well as increasing their exposure to adverse shocks to labour markets, such as occurred during the Covid outbreak starting in 2020.
• During the 1980s and 1990s around 10% of farm labour inputs (on average) were sourced from outside the family. However, as dairy farms became larger the average share of hired labour increased (Figure 8). In 2022–23, just over 40% of farm labour inputs (in terms of weeks worked) were provided by permanent or casual employees. Moreover, the trend towards greater use of hired labour appears to be ongoing.

Figure 8 Hired labour share and dairy herd size, 1978–79 to 2022–23
averages per farm

• Sustained industry growth and resilience relies on businesses continually investing to improve efficiency, increase scale or replace older capital items with newer and more efficient technologies.
• In high income years many farmers invest surplus funds in farm development or purchasing capital equipment. Increases in incomes also provide additional funds to invest and/or stronger cashflows to service additional debt. However, the level of investment varies by farm size, with smaller farms often increasing their holdings of liquid assets in high income years rather than reinvesting back into their farm business.
• The recovery in dairy farm incomes over the last three years has encouraged a surge in new capital investment, with average net capital additions reaching record levels in 2021–22 and 2022–23 (Figure 9).

Figure 9 Farm cash income and capital additions, dairy farms, 1999–2000 to 2022–23
average per farm

• The proportion of dairy farms investing in new capital each year averaged 61% over the 10 years to 2021–22. In 2022–23—the most recent year for farm investment data—the proportion of dairy farms making capital additions was 66% – down slightly on the two previous years, but still above the 10 year average (Figure 10).

Figure 10 Percent of farms making capital additions, dairy farms, 1999–2000 to 2022–23
percent of farms

Types of farm capital

• The dominant type of capital used in Australian agriculture is ‘land’ capital. In 2022–23 land capital accounted for 82% of the total value of capital for dairy farms (Figure 11).
• Dairy farms use more plant, machinery and equipment capital compared with beef and sheep specialist farms, which is mostly in the form of specialised milking machinery and equipment, including vats.

Figure 11 Components of farm capital, broadacre and dairy farms, 2020–21 to 2022–23
average per farm

• Many dairy farms have substantial holdings of liquid assets relative to farm income that makes them well placed to withstand short–term downturns in income, although there is wide distribution across farm sizes (Figure 12).
• Non-farm income also increases business resilience to shocks to farm financial performance for many farms. For example, small dairy farms derived nearly 30% of their total household income (farm cash income plus non farm income) from non farm sources over the last three-year period, compared to less than 2% on very large dairy farms. Non-farm household income is generally more stable from year to year than farm income, and is usually in the form of wage and salary income from off farm jobs.
• Farm Management Deposits (FMDs) are an important financial risk management tool for many dairy farms and forms part of their liquid assets. At 30 June 2023, an estimated 17% of dairy had a non zero balance in their FMD accounts, with an average holding of $352,600 per farm.

Figure 12 Farm household income and liquid assets by farm size, dairy farms, 2020–21 to 2022–23
average per farm

The data in this report are drawn from ABARES Australian Dairy Industries Survey (ADIS). ADIS covers milk producing farms with an estimated annual value of agricultural operations (EVAO) greater than $40,000. Dairy farms account for around 5% of all Australian farm businesses and are identified for the purposes of the survey using an industry definition established under the Australian and New Zealand Standard Industrial Classification (ANZSIC) system:

This class consists of units mainly engaged in farming dairy cattle. Also included are units mainly engaged in sharemilking i.e. where the unit is contracted to milk the herd and/or perform other farm duties for a share of the milk income. Primary activities are:

• Dairy cattle farming
• Raw cattle milk production
• Sharemilking dairy cattle

ADIS provides a wide range of information on the current and historical economic performance of farm business units, including farm costs, receipts, income and profit, debt, assets, farm capital and labour, industry and farm size.

Further information on ABARES farm surveys and survey methodology can be found on the ABARES website.

All dollar values in this report are expressed in real terms, adjusted to 2023–24 values. Adjusting to real terms removes the effect of inflation and allows financial values of different time periods to be compared in like terms. ABARES adjusts for inflation using the consumer price index produced by the Australian Bureau of Statistics (Australian Bureau of Statistics, 2024).

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Farm surveys definitions and methods

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The Farm Data Portal is an interactive tool containing all data from ABARES surveys of broadacre and dairy farms, and outputs from those surveys, all in the one location.