Scheduled Report - Public distribution

**Date:** 10/24/2007

**GAIN Report Number:** AS7063

AS7063

**Australia**

**Dairy and Products**

**Annual**

**2007**

**Approved by:**

![](media/image1.wmf)Kathleen Wainio, Agricultural Counselor

U.S. Embassy

**Prepared by:**

Mike Darby, Agricultural Specialist

**Report Highlights:**

Fluid milk production for 2007/08 is forecast at 9.13 billion liters,
down five percent from the previous year and the lowest level of
production in more than a decade. Irrigation water availability and the
efficiency of its use will likely be the single largest driver of dairy
productivity over the next decade. Dairy production accounts for around
40 percent of total irrigation water consumption in Australia.

Includes PSD Changes: Yes

Includes Trade Matrix: No

Annual Report

Canberra \[AS1\]

\[AS\]

Table of Contents

[SECTION ONE: SITUATION AND OUTLOOK
3](#section-one-situation-and-outlook)

[Summary 3](#summary-1)

[SECTION TWO: STATISTICAL TABLES 4](#section-two-statistical-tables)

[SECTION THREE: NARRATIVE ON SUPPLY AND DEMAND, POLICY & MARKETING
9](#section-three-narrative-on-supply-and-demand-policy-marketing)

[Fluid Milk 9](#fluid-milk)

[Production 9](#production)

[Cheese 9](#cheese)

[Production 9](#production-1)

[Exports 10](#exports)

[Imports 10](#imports)

[Butter 10](#butter)

[Production 10](#production-2)

[Exports 11](#exports-1)

[Whole Milk Powder 11](#whole-milk-powder)

[Production 11](#production-3)

[Exports 12](#exports-2)

[Skim Milk Powder 12](#skim-milk-powder)

[Production 12](#production-4)

[Exports 12](#exports-3)

[Recent Reports from FAS/Canberra 13](#recent-reports-from-fascanberra)

# SECTION ONE: SITUATION AND OUTLOOK

## Summary {#summary-1}

At the time of writing this report, the majority of the Australian dairy
industry is experiencing extremely difficult seasonal conditions. Severe
and long running drought has seen pasture conditions deteriorate sharply
and fodder reserves dwindle. Post has revised production downward
significantly and has also adjusted exports of cheese and butter
reflecting lower production levels.

Record prices for grain and irrigation water has dramatically reduced
the profitability of dairy production, challenging the sustainability of
many dairy farms.

Anecdotal evidence suggests that the slaughter of dairy cattle has
increased substantially as producers cull less productive cattle in an
effort to avoid high feeding costs. Despite high levels of media
attention, dairy farmers have not yet begun to abandon their farms,
although Post expects above average numbers of dairy farmers will exit
the industry in 2007/08.

Of particular concern are the lack of irrigation water and a lack of
feed grain. The long running nature of the current drought, which began
in CY 2002, has seen reserves of irrigation water and feed grains
depleted over the past four years. This has created long term production
constraints on the industry which are unlikely to be resolved in the
foreseeable future.

High world prices for dairy commodities have been passed on to producers
in the form of higher farm gate prices for milk and this has effectively
softened the impact of sky-rocketing feed prices. However, media reports
quote dairy farmers as saying that prices rises for milk have not
effectively countered higher production costs.

Post has assumed a return to normal weather conditions for the remainder
of 2007/08, although this will not likely prevent production from
falling to forecast levels. Above average rainfall over a prolonged
period, or at least until the end of 2007/2008 would be required to
significantly improve pasture conditions and irrigation water supplies.
However, even under this scenario there is likely to be a significant
lag prior to feed grain supplies improving to a level reflective of the
longer term average.

Irrigation water availability and the efficiency of its use will likely
be the single largest driver of dairy productivity over the next decade.
Despite occupying only 0.5 percent of Australia's land mass, irrigated
agriculture accounts for 26% of total agricultural value. Dairy
production accounts for around 40 percent of total irrigation water
consumption in Australia.

# SECTION TWO: STATISTICAL TABLES

<table>
<colgroup>
<col style="width: 14%" />
<col style="width: 8%" />
<col style="width: 9%" />
<col style="width: 8%" />
<col style="width: 7%" />
<col style="width: 8%" />
<col style="width: 8%" />
<col style="width: 7%" />
<col style="width: 8%" />
<col style="width: 8%" />
<col style="width: 7%" />
</colgroup>
<tbody>
<tr class="odd">
<td colspan="11"><p><strong>PSD Table</strong></p>
<p><strong>Dairy, Milk, Fluid</strong></p></td>
</tr>
<tr class="even">
<td></td>
<td>2006</td>
<td>Revised</td>
<td></td>
<td>2007</td>
<td>Estimate</td>
<td></td>
<td>2008</td>
<td>Forecast</td>
<td></td>
<td>UOM</td>
</tr>
<tr class="odd">
<td></td>
<td>USDA<br />
Official</td>
<td>Post<br />
Estimate</td>
<td>Post<br />
Estimate<br />
New</td>
<td>USDA<br />
Official</td>
<td>Post<br />
Estimate</td>
<td>Post<br />
Estimate<br />
New</td>
<td>USDA<br />
Official</td>
<td>Post<br />
Estimate</td>
<td>Post<br />
Estimate<br />
New</td>
<td></td>
</tr>
<tr class="even">
<td><strong>Market Year Begin</strong></td>
<td></td>
<td>07/2005</td>
<td>07/2005</td>
<td></td>
<td>07/2006</td>
<td>07/2006</td>
<td></td>
<td>07/2007</td>
<td>07/2007</td>
<td>MM/YYYY</td>
</tr>
<tr class="odd">
<td>Cows In Milk</td>
<td>2045</td>
<td>2045</td>
<td>1870</td>
<td>1950</td>
<td>1950</td>
<td>1800</td>
<td>0</td>
<td>0</td>
<td>1710</td>
<td>(1000 HEAD)</td>
</tr>
<tr class="even">
<td>Cows Milk Production</td>
<td>10395</td>
<td>10395</td>
<td>10395</td>
<td>9785</td>
<td>9785</td>
<td>9870</td>
<td>0</td>
<td>0</td>
<td>9400</td>
<td>(1000 MT)</td>
</tr>
<tr class="odd">
<td>Other Milk Production</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>(1000 MT)</td>
</tr>
<tr class="even">
<td>Total Production</td>
<td>10395</td>
<td>10395</td>
<td>10395</td>
<td>9785</td>
<td>9785</td>
<td>9870</td>
<td>0</td>
<td>0</td>
<td>9400</td>
<td>(1000 MT)</td>
</tr>
<tr class="odd">
<td>Other Imports</td>
<td>3</td>
<td>3</td>
<td>3</td>
<td>3</td>
<td>3</td>
<td>3</td>
<td>0</td>
<td>0</td>
<td>3</td>
<td>(1000 MT)</td>
</tr>
<tr class="even">
<td>Total Imports</td>
<td>3</td>
<td>3</td>
<td>3</td>
<td>3</td>
<td>3</td>
<td>3</td>
<td>0</td>
<td>0</td>
<td>3</td>
<td>(1000 MT)</td>
</tr>
<tr class="odd">
<td>Total Supply</td>
<td>10398</td>
<td>10398</td>
<td>10398</td>
<td>9788</td>
<td>9788</td>
<td>9873</td>
<td>0</td>
<td>0</td>
<td>9403</td>
<td>(1000 MT)</td>
</tr>
<tr class="even">
<td>Other Exports</td>
<td>86</td>
<td>86</td>
<td>86</td>
<td>81</td>
<td>81</td>
<td>82</td>
<td>0</td>
<td>0</td>
<td>80</td>
<td>(1000 MT)</td>
</tr>
<tr class="odd">
<td>Total Exports</td>
<td>86</td>
<td>86</td>
<td>86</td>
<td>81</td>
<td>81</td>
<td>82</td>
<td>0</td>
<td>0</td>
<td>80</td>
<td>(1000 MT)</td>
</tr>
<tr class="even">
<td>Fluid Use Dom. Consum.</td>
<td>2127</td>
<td>2127</td>
<td>2127</td>
<td>2000</td>
<td>2000</td>
<td>2223</td>
<td>0</td>
<td>0</td>
<td>2200</td>
<td>(1000 MT)</td>
</tr>
<tr class="odd">
<td>Factory Use Consum.</td>
<td>8185</td>
<td>8185</td>
<td>8185</td>
<td>7707</td>
<td>7707</td>
<td>7568</td>
<td>0</td>
<td>0</td>
<td>7123</td>
<td>(1000 MT)</td>
</tr>
<tr class="even">
<td>Feed Use Dom. Consum.</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>(1000 MT)</td>
</tr>
<tr class="odd">
<td>Total Dom. Consumption</td>
<td>10312</td>
<td>10312</td>
<td>10312</td>
<td>9707</td>
<td>9707</td>
<td>9791</td>
<td>0</td>
<td>0</td>
<td>9323</td>
<td>(1000 MT)</td>
</tr>
<tr class="even">
<td>Total Distribution</td>
<td>10398</td>
<td>10398</td>
<td>10398</td>
<td>9788</td>
<td>9788</td>
<td>9873</td>
<td>0</td>
<td>0</td>
<td>9403</td>
<td>(1000 MT)</td>
</tr>
<tr class="odd">
<td>CY Imp. from U.S.</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>(1000 MT)</td>
</tr>
<tr class="even">
<td>CY. Exp. to U.S.</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>(1000 MT)</td>
</tr>
</tbody>
</table>

<table>
<colgroup>
<col style="width: 12%" />
<col style="width: 7%" />
<col style="width: 9%" />
<col style="width: 9%" />
<col style="width: 7%" />
<col style="width: 9%" />
<col style="width: 9%" />
<col style="width: 7%" />
<col style="width: 9%" />
<col style="width: 9%" />
<col style="width: 9%" />
</colgroup>
<tbody>
<tr class="odd">
<td colspan="11"><p><strong>PSD Table</strong></p>
<p><strong>Dairy, Cheese</strong></p></td>
</tr>
<tr class="even">
<td></td>
<td>2006</td>
<td>Revised</td>
<td></td>
<td>2007</td>
<td>Estimate</td>
<td></td>
<td>2008</td>
<td>Forecast</td>
<td></td>
<td>UOM</td>
</tr>
<tr class="odd">
<td></td>
<td>USDA<br />
Official</td>
<td>Post<br />
Estimate</td>
<td>Post<br />
Estimate<br />
New</td>
<td>USDA<br />
Official</td>
<td>Post<br />
Estimate</td>
<td>Post<br />
Estimate<br />
New</td>
<td>USDA<br />
Official</td>
<td>Post<br />
Estimate</td>
<td>Post<br />
Estimate<br />
New</td>
<td></td>
</tr>
<tr class="even">
<td><strong>Market Year Begin</strong></td>
<td></td>
<td>07/2005</td>
<td>07/2005</td>
<td></td>
<td>07/2006</td>
<td>07/2006</td>
<td></td>
<td>07/2007</td>
<td>07/2007</td>
<td>MM/YYYY</td>
</tr>
<tr class="odd">
<td>Beginning Stocks</td>
<td>25</td>
<td>25</td>
<td>25</td>
<td>15</td>
<td>15</td>
<td>21</td>
<td>10</td>
<td>10</td>
<td>18</td>
<td>(1000 MT)</td>
</tr>
<tr class="even">
<td>Production</td>
<td>362</td>
<td>362</td>
<td>362</td>
<td>360</td>
<td>360</td>
<td>360</td>
<td>0</td>
<td>0</td>
<td>335</td>
<td>(1000 MT)</td>
</tr>
<tr class="odd">
<td>Other Imports</td>
<td>50</td>
<td>50</td>
<td>61</td>
<td>51</td>
<td>51</td>
<td>64</td>
<td>0</td>
<td>0</td>
<td>65</td>
<td>(1000 MT)</td>
</tr>
<tr class="even">
<td>Total Imports</td>
<td>50</td>
<td>50</td>
<td>61</td>
<td>51</td>
<td>51</td>
<td>64</td>
<td>0</td>
<td>0</td>
<td>65</td>
<td>(1000 MT)</td>
</tr>
<tr class="odd">
<td>Total Supply</td>
<td>437</td>
<td>437</td>
<td>448</td>
<td>426</td>
<td>426</td>
<td>445</td>
<td>10</td>
<td>10</td>
<td>418</td>
<td>(1000 MT)</td>
</tr>
<tr class="even">
<td>Other Exports</td>
<td>202</td>
<td>202</td>
<td>202</td>
<td>201</td>
<td>201</td>
<td>212</td>
<td>0</td>
<td>0</td>
<td>198</td>
<td>(1000 MT)</td>
</tr>
<tr class="odd">
<td>Total Exports</td>
<td>202</td>
<td>202</td>
<td>202</td>
<td>201</td>
<td>201</td>
<td>212</td>
<td>0</td>
<td>0</td>
<td>198</td>
<td>(1000 MT)</td>
</tr>
<tr class="even">
<td>Human Dom. Consumption</td>
<td>220</td>
<td>220</td>
<td>225</td>
<td>215</td>
<td>215</td>
<td>215</td>
<td>0</td>
<td>0</td>
<td>205</td>
<td>(1000 MT)</td>
</tr>
<tr class="odd">
<td>Other Use, Losses</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>(1000 MT)</td>
</tr>
<tr class="even">
<td>Total Dom. Consumption</td>
<td>220</td>
<td>220</td>
<td>225</td>
<td>215</td>
<td>215</td>
<td>215</td>
<td>0</td>
<td>0</td>
<td>205</td>
<td>(1000 MT)</td>
</tr>
<tr class="odd">
<td>Total Use</td>
<td>422</td>
<td>422</td>
<td>427</td>
<td>416</td>
<td>416</td>
<td>427</td>
<td>0</td>
<td>0</td>
<td>403</td>
<td>(1000 MT)</td>
</tr>
<tr class="even">
<td>Ending Stocks</td>
<td>15</td>
<td>15</td>
<td>21</td>
<td>10</td>
<td>10</td>
<td>18</td>
<td>0</td>
<td>0</td>
<td>15</td>
<td>(1000 MT)</td>
</tr>
<tr class="odd">
<td>Total Distribution</td>
<td>437</td>
<td>437</td>
<td>448</td>
<td>426</td>
<td>426</td>
<td>445</td>
<td>0</td>
<td>0</td>
<td>418</td>
<td>(1000 MT)</td>
</tr>
<tr class="even">
<td>CY Imp. from U.S.</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>(1000 MT)</td>
</tr>
<tr class="odd">
<td>CY. Exp. to U.S.</td>
<td>12</td>
<td>12</td>
<td>12</td>
<td>11</td>
<td>11</td>
<td>11</td>
<td>0</td>
<td>0</td>
<td>11</td>
<td>(1000 MT)</td>
</tr>
</tbody>
</table>

<table>
<colgroup>
<col style="width: 12%" />
<col style="width: 7%" />
<col style="width: 9%" />
<col style="width: 9%" />
<col style="width: 7%" />
<col style="width: 9%" />
<col style="width: 9%" />
<col style="width: 7%" />
<col style="width: 9%" />
<col style="width: 9%" />
<col style="width: 9%" />
</colgroup>
<tbody>
<tr class="odd">
<td colspan="11"><p><strong>PSD Table</strong></p>
<p><strong>Dairy, Butter</strong></p></td>
</tr>
<tr class="even">
<td></td>
<td>2006</td>
<td>Revised</td>
<td></td>
<td>2007</td>
<td>Estimate</td>
<td></td>
<td>2008</td>
<td>Forecast</td>
<td></td>
<td>UOM</td>
</tr>
<tr class="odd">
<td></td>
<td>USDA<br />
Official</td>
<td>Post<br />
Estimate</td>
<td>Post<br />
Estimate<br />
New</td>
<td>USDA<br />
Official</td>
<td>Post<br />
Estimate</td>
<td>Post<br />
Estimate<br />
New</td>
<td>USDA<br />
Official</td>
<td>Post<br />
Estimate</td>
<td>Post<br />
Estimate<br />
New</td>
<td></td>
</tr>
<tr class="even">
<td><strong>Market Year Begin</strong></td>
<td></td>
<td>07/2005</td>
<td>07/2005</td>
<td></td>
<td>07/2006</td>
<td>07/2006</td>
<td></td>
<td>07/2007</td>
<td>07/2007</td>
<td>MM/YYYY</td>
</tr>
<tr class="odd">
<td>Beginning Stocks</td>
<td>14</td>
<td>14</td>
<td>14</td>
<td>10</td>
<td>10</td>
<td>9</td>
<td>7</td>
<td>7</td>
<td>4</td>
<td>(1000 MT)</td>
</tr>
<tr class="even">
<td>Production</td>
<td>129</td>
<td>129</td>
<td>129</td>
<td>115</td>
<td>115</td>
<td>117</td>
<td>0</td>
<td>0</td>
<td>110</td>
<td>(1000 MT)</td>
</tr>
<tr class="odd">
<td>Other Imports</td>
<td>11</td>
<td>11</td>
<td>10</td>
<td>12</td>
<td>12</td>
<td>13</td>
<td>0</td>
<td>0</td>
<td>14</td>
<td>(1000 MT)</td>
</tr>
<tr class="even">
<td>Total Imports</td>
<td>11</td>
<td>11</td>
<td>10</td>
<td>12</td>
<td>12</td>
<td>13</td>
<td>0</td>
<td>0</td>
<td>14</td>
<td>(1000 MT)</td>
</tr>
<tr class="odd">
<td>Total Supply</td>
<td>154</td>
<td>154</td>
<td>153</td>
<td>137</td>
<td>137</td>
<td>139</td>
<td>7</td>
<td>7</td>
<td>128</td>
<td>(1000 MT)</td>
</tr>
<tr class="even">
<td>Other Exports</td>
<td>82</td>
<td>82</td>
<td>82</td>
<td>70</td>
<td>70</td>
<td>80</td>
<td>0</td>
<td>0</td>
<td>70</td>
<td>(1000 MT)</td>
</tr>
<tr class="odd">
<td>Total Exports</td>
<td>82</td>
<td>82</td>
<td>82</td>
<td>70</td>
<td>70</td>
<td>80</td>
<td>0</td>
<td>0</td>
<td>70</td>
<td>(1000 MT)</td>
</tr>
<tr class="even">
<td>Domestic Consumption</td>
<td>62</td>
<td>62</td>
<td>62</td>
<td>60</td>
<td>60</td>
<td>55</td>
<td>0</td>
<td>0</td>
<td>55</td>
<td>(1000 MT)</td>
</tr>
<tr class="odd">
<td>Total Use</td>
<td>144</td>
<td>144</td>
<td>144</td>
<td>130</td>
<td>130</td>
<td>135</td>
<td>0</td>
<td>0</td>
<td>125</td>
<td>(1000 MT)</td>
</tr>
<tr class="even">
<td>Ending Stocks</td>
<td>10</td>
<td>10</td>
<td>9</td>
<td>7</td>
<td>7</td>
<td>4</td>
<td>0</td>
<td>0</td>
<td>3</td>
<td>(1000 MT)</td>
</tr>
<tr class="odd">
<td>Total Distribution</td>
<td>154</td>
<td>154</td>
<td>153</td>
<td>137</td>
<td>137</td>
<td>139</td>
<td>0</td>
<td>0</td>
<td>128</td>
<td>(1000 MT)</td>
</tr>
<tr class="even">
<td>CY Imp. from U.S.</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>(1000 MT)</td>
</tr>
<tr class="odd">
<td>CY. Exp. to U.S.</td>
<td>2</td>
<td>2</td>
<td>2</td>
<td>2</td>
<td>2</td>
<td>2</td>
<td>0</td>
<td>0</td>
<td>2</td>
<td>(1000 MT)</td>
</tr>
</tbody>
</table>

<table>
<colgroup>
<col style="width: 12%" />
<col style="width: 7%" />
<col style="width: 9%" />
<col style="width: 9%" />
<col style="width: 7%" />
<col style="width: 9%" />
<col style="width: 9%" />
<col style="width: 7%" />
<col style="width: 9%" />
<col style="width: 9%" />
<col style="width: 9%" />
</colgroup>
<tbody>
<tr class="odd">
<td colspan="11"><p><strong>PSD Table</strong></p>
<p><strong>Dairy, Dry Whole Milk Powder</strong></p></td>
</tr>
<tr class="even">
<td></td>
<td>2006</td>
<td>Revised</td>
<td></td>
<td>2007</td>
<td>Estimate</td>
<td></td>
<td>2008</td>
<td>Forecast</td>
<td></td>
<td>UOM</td>
</tr>
<tr class="odd">
<td></td>
<td>USDA<br />
Official</td>
<td>Post<br />
Estimate</td>
<td>Post<br />
Estimate<br />
New</td>
<td>USDA<br />
Official</td>
<td>Post<br />
Estimate</td>
<td>Post<br />
Estimate<br />
New</td>
<td>USDA<br />
Official</td>
<td>Post<br />
Estimate</td>
<td>Post<br />
Estimate<br />
New</td>
<td></td>
</tr>
<tr class="even">
<td><strong>Market Year Begin</strong></td>
<td></td>
<td>07/2005</td>
<td>07/2005</td>
<td></td>
<td>07/2006</td>
<td>07/2006</td>
<td></td>
<td>07/2007</td>
<td>07/2007</td>
<td>MM/YYYY</td>
</tr>
<tr class="odd">
<td>Beginning Stocks</td>
<td>49</td>
<td>49</td>
<td>49</td>
<td>38</td>
<td>38</td>
<td>34</td>
<td>27</td>
<td>27</td>
<td>23</td>
<td>(1000 MT)</td>
</tr>
<tr class="even">
<td>Production</td>
<td>158</td>
<td>158</td>
<td>152</td>
<td>140</td>
<td>140</td>
<td>135</td>
<td>0</td>
<td>0</td>
<td>135</td>
<td>(1000 MT)</td>
</tr>
<tr class="odd">
<td>Other Imports</td>
<td>13</td>
<td>13</td>
<td>13</td>
<td>16</td>
<td>16</td>
<td>11</td>
<td>0</td>
<td>0</td>
<td>10</td>
<td>(1000 MT)</td>
</tr>
<tr class="even">
<td>Total Imports</td>
<td>13</td>
<td>13</td>
<td>13</td>
<td>16</td>
<td>16</td>
<td>11</td>
<td>0</td>
<td>0</td>
<td>10</td>
<td>(1000 MT)</td>
</tr>
<tr class="odd">
<td>Total Supply</td>
<td>220</td>
<td>220</td>
<td>214</td>
<td>194</td>
<td>194</td>
<td>180</td>
<td>27</td>
<td>27</td>
<td>168</td>
<td>(1000 MT)</td>
</tr>
<tr class="even">
<td>Other Exports</td>
<td>155</td>
<td>155</td>
<td>153</td>
<td>140</td>
<td>140</td>
<td>130</td>
<td>0</td>
<td>0</td>
<td>130</td>
<td>(1000 MT)</td>
</tr>
<tr class="odd">
<td>Total Exports</td>
<td>155</td>
<td>155</td>
<td>153</td>
<td>140</td>
<td>140</td>
<td>130</td>
<td>0</td>
<td>0</td>
<td>130</td>
<td>(1000 MT)</td>
</tr>
<tr class="even">
<td>Human Dom. Consumption</td>
<td>27</td>
<td>27</td>
<td>27</td>
<td>27</td>
<td>27</td>
<td>27</td>
<td>0</td>
<td>0</td>
<td>27</td>
<td>(1000 MT)</td>
</tr>
<tr class="odd">
<td>Other Use, Losses</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>(1000 MT)</td>
</tr>
<tr class="even">
<td>Total Dom. Consumption</td>
<td>27</td>
<td>27</td>
<td>27</td>
<td>27</td>
<td>27</td>
<td>27</td>
<td>0</td>
<td>0</td>
<td>27</td>
<td>(1000 MT)</td>
</tr>
<tr class="odd">
<td>Total Use</td>
<td>182</td>
<td>182</td>
<td>180</td>
<td>167</td>
<td>167</td>
<td>157</td>
<td>0</td>
<td>0</td>
<td>157</td>
<td>(1000 MT)</td>
</tr>
<tr class="even">
<td>Ending Stocks</td>
<td>38</td>
<td>38</td>
<td>34</td>
<td>27</td>
<td>27</td>
<td>23</td>
<td>0</td>
<td>0</td>
<td>11</td>
<td>(1000 MT)</td>
</tr>
<tr class="odd">
<td>Total Distribution</td>
<td>220</td>
<td>220</td>
<td>214</td>
<td>194</td>
<td>194</td>
<td>180</td>
<td>0</td>
<td>0</td>
<td>168</td>
<td>(1000 MT)</td>
</tr>
<tr class="even">
<td>CY Imp. from U.S.</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>1</td>
<td>0</td>
<td>0</td>
<td>1</td>
<td>(1000 MT)</td>
</tr>
<tr class="odd">
<td>CY. Exp. to U.S.</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>1</td>
<td>0</td>
<td>0</td>
<td>1</td>
<td>(1000 MT)</td>
</tr>
</tbody>
</table>

<table>
<colgroup>
<col style="width: 12%" />
<col style="width: 7%" />
<col style="width: 9%" />
<col style="width: 9%" />
<col style="width: 7%" />
<col style="width: 9%" />
<col style="width: 9%" />
<col style="width: 7%" />
<col style="width: 9%" />
<col style="width: 9%" />
<col style="width: 9%" />
</colgroup>
<tbody>
<tr class="odd">
<td colspan="11"><p><strong>PSD Table</strong></p>
<p><strong>Dairy, Milk, Nonfat Dry</strong></p></td>
</tr>
<tr class="even">
<td></td>
<td>2006</td>
<td>Revised</td>
<td></td>
<td>2007</td>
<td>Estimate</td>
<td></td>
<td>2008</td>
<td>Forecast</td>
<td></td>
<td>UOM</td>
</tr>
<tr class="odd">
<td></td>
<td>USDA<br />
Official</td>
<td>Post<br />
Estimate</td>
<td>Post<br />
Estimate<br />
New</td>
<td>USDA<br />
Official</td>
<td>Post<br />
Estimate</td>
<td>Post<br />
Estimate<br />
New</td>
<td>USDA<br />
Official</td>
<td>Post<br />
Estimate</td>
<td>Post<br />
Estimate<br />
New</td>
<td></td>
</tr>
<tr class="even">
<td><strong>Market Year Begin</strong></td>
<td></td>
<td>07/2005</td>
<td>07/2005</td>
<td></td>
<td>07/2006</td>
<td>07/2006</td>
<td></td>
<td>07/2007</td>
<td>07/2007</td>
<td>MM/YYYY</td>
</tr>
<tr class="odd">
<td>Beginning Stocks</td>
<td>39</td>
<td>39</td>
<td>39</td>
<td>38</td>
<td>38</td>
<td>38</td>
<td>25</td>
<td>35</td>
<td>34</td>
<td>(1000 MT)</td>
</tr>
<tr class="even">
<td>Production</td>
<td>221</td>
<td>221</td>
<td>221</td>
<td>200</td>
<td>205</td>
<td>205</td>
<td>0</td>
<td>0</td>
<td>205</td>
<td>(1000 MT)</td>
</tr>
<tr class="odd">
<td>Other Imports</td>
<td>5</td>
<td>5</td>
<td>5</td>
<td>6</td>
<td>6</td>
<td>6</td>
<td>0</td>
<td>0</td>
<td>3</td>
<td>(1000 MT)</td>
</tr>
<tr class="even">
<td>Total Imports</td>
<td>5</td>
<td>5</td>
<td>5</td>
<td>6</td>
<td>6</td>
<td>6</td>
<td>0</td>
<td>0</td>
<td>3</td>
<td>(1000 MT)</td>
</tr>
<tr class="odd">
<td>Total Supply</td>
<td>265</td>
<td>265</td>
<td>265</td>
<td>244</td>
<td>249</td>
<td>249</td>
<td>25</td>
<td>35</td>
<td>242</td>
<td>(1000 MT)</td>
</tr>
<tr class="even">
<td>Other Exports</td>
<td>192</td>
<td>192</td>
<td>189</td>
<td>175</td>
<td>170</td>
<td>175</td>
<td>0</td>
<td>0</td>
<td>173</td>
<td>(1000 MT)</td>
</tr>
<tr class="odd">
<td>Total Exports</td>
<td>192</td>
<td>192</td>
<td>189</td>
<td>175</td>
<td>170</td>
<td>175</td>
<td>0</td>
<td>0</td>
<td>173</td>
<td>(1000 MT)</td>
</tr>
<tr class="even">
<td>Human Dom. Consumption</td>
<td>35</td>
<td>35</td>
<td>38</td>
<td>44</td>
<td>44</td>
<td>40</td>
<td>0</td>
<td>0</td>
<td>42</td>
<td>(1000 MT)</td>
</tr>
<tr class="odd">
<td>Other Use, Losses</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>(1000 MT)</td>
</tr>
<tr class="even">
<td>Total Dom. Consumption</td>
<td>35</td>
<td>35</td>
<td>38</td>
<td>44</td>
<td>44</td>
<td>40</td>
<td>0</td>
<td>0</td>
<td>42</td>
<td>(1000 MT)</td>
</tr>
<tr class="odd">
<td>Total Use</td>
<td>227</td>
<td>227</td>
<td>227</td>
<td>219</td>
<td>214</td>
<td>215</td>
<td>0</td>
<td>0</td>
<td>215</td>
<td>(1000 MT)</td>
</tr>
<tr class="even">
<td>Ending Stocks</td>
<td>38</td>
<td>38</td>
<td>38</td>
<td>25</td>
<td>35</td>
<td>34</td>
<td>0</td>
<td>0</td>
<td>27</td>
<td>(1000 MT)</td>
</tr>
<tr class="odd">
<td>Total Distribution</td>
<td>265</td>
<td>265</td>
<td>265</td>
<td>244</td>
<td>249</td>
<td>249</td>
<td>0</td>
<td>0</td>
<td>242</td>
<td>(1000 MT)</td>
</tr>
<tr class="even">
<td>CY Imp. from U.S.</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>(1000 MT)</td>
</tr>
<tr class="odd">
<td>CY. Exp. to U.S.</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>(1000 MT)</td>
</tr>
</tbody>
</table>

# SECTION THREE: NARRATIVE ON SUPPLY AND DEMAND, POLICY & MARKETING

## Fluid Milk

### Production

Fluid milk production is forecast to 9,400 TMT for 2007/08, or roughly
9.13 billion liters using a conversion factor of 1.03. This forecast, if
achieved represents a decline of about five percent on the revised
estimate for the previous year and would be the lowest level of
production for more than a decade.

The forecast fall in production has been driven by a similar fall in cow
numbers. The poor availability of fodder and irrigation water, and the
sharp increase in the associated cost of production has placed downward
pressure on cow numbers as milk producers cull less efficient dairy
cattle. Anecdotal evidence suggests a significant increase in the
slaughter of dairy cattle.

The forecast fall in milk supply in CY 2007/08 is perhaps the largest
single driver of dairy commodity production and trade. Post anticipates
the majority of the shift in production and trade of dairy products from
Australia will be driven by lower supplies of fluid milk.

![](media/image2.wmf){width="6.332638888888889in"
height="2.3958333333333335in"}

In arriving at this forecast Post has assumed a return to average
climatic conditions. However, if this were to occur, it is not expected
to see production immediately recover. Post advises that the decline in
cow numbers, irrigation water reserves and stocks of fodder would likely
take years to replenish. A return to production levels experienced prior
to the drought, when Australia produced 11.27 billion liters of milk, is
not likely in the foreseeable future.

Post advises that in the event where drought continues for the remainder
of 2007/08 Post would likely be required to revise this forecast
downward.

## Cheese

### Production

Cheese production in 2007/08 is forecast to fall seven percent to 335
TMT. This forecast represents a reversal of the trend away from other
dairy commodities towards cheese production. For more than a decade,
dairy production has typically favored cheese over milk powders and
butter due to higher demand for cheese, particularly in the emerging
markets of Asia. However, recent analysis reported by ABARE forecast a
smaller price increase for cheese in comparison with other dairy
commodities, such as milk powders.

Industry sources report that current and forecast dairy commodity prices
are likely to see increases in the production of milk powders rather
than cheese and butter. The higher production costs of cheese and
butter, and the production lag time of cheese in particular, will likely
increased milk powder production.

### Exports

Exports of cheese are also forecast to decline to 198 TMT. This forecast
is largely in line with the forecast decline in production. Despite
cheese not having as buoyant an outlook as other commodities, Post
acknowledges that cheese prices are forecast to increase in absolute
terms, and this will likely constrain larger falls in exports.

According to official trade statistics, Japan is the single largest
export market for Australian cheese receiving 45 percent of total cheese
exports. Saudi Arabia and the United States are Australia's second and
third largest export markets receiving nine and seven percent
respectively.

### Imports

Australia imports significant quantities of cheese. In 2006/07 it is
estimated that Australia imports 64 TMT of cheese. Official trade
figures show that the overwhelming majority of imports were from New
Zealand, with the remainder from Europe.

## Butter

### Production

Butter production in 2007/08 is forecast to fall by seven percent to
2007/08, driven by lower milk supply. Prices for butter in 2007/08 are
also expected to increase in absolute terms in 2007/08; however this
rise is expected to be less than that for milk powders.

Historically, butter production has been less attractive than other
dairy commodities such as cheese. Post believes that long term falls in
production over the past decade will continue to be a factor with butter
production in the future and as a result, has forecast falling
production.

![](media/image3.wmf){width="5.864583333333333in"
height="2.0520833333333335in"}

### Exports

Butter exports for 2007/08 are forecast at 70 TMT, down sharply on the
revised estimate for the previous year. Reduced production of butter is
likely to see butter exports fall. If achieved, this forecast would
represent the lowest butter export figure since 2004/05, and the second
lowest in the past decade.

Historical data shows a longer term decline in butter exports as fluid
milk supply has been redirected toward other higher value dairy
commodities such as cheese. Post anticipates that this long term trend
will likely combine with lower total milk supply to see exports fall
significantly in 2007/08.

According to official trade data, Australia's top three export markets
for butter for the year ending June 2007 were Egypt, Singapore and South
Korea. The United States was Australia's fifth largest export market.
The export market for Australian butter is unusually diverse with the
seven largest markets accounting for only half of total exports.
According to these figures, Egypt is one of the fastest growing markets
for Australian butter while exports to the United States are declining
(likely due to the closing exchange rate).

## Whole Milk Powder

### Production 

Production of whole milk powder (WMP) is forecast at 135 TMT, unchanged
from the revised number for the previous year. Despite falling fluid
milk production, a shift towards milk powders in 2007/08 is expected to
see WMP production hold firm while both butter and cheese decline
markedly.

The forecast of firm production of WMP for 2007/08 is supported by
recent ABARE forecasts showing the price of milk powders increasing by
60 percent in 2007/08. Local anecdotal evidence suggests that the
inclusion of milk powders in livestock feed, and the historically high
price of stock feed have acted to drive milk powder prices higher.

According to historical data, WMP production has been declining over the
past decade.

![](media/image4.wmf){width="5.895833333333333in"
height="1.8229166666666667in"}

### Exports

Exports of WMP in 2007/08 are forecast to remain largely unchanged at
130 TMT. Unchanged production is likely to allow exports to remain
unchanged in 2007/08, despite sharply lower fluid milk production.
Perhaps the only threat to this forecast is the buoyant demand from
domestic manufacturers who are servicing a buoyant domestic market.
However, industry sources suggest that with prices as high as they
currently are, domestic consumption will not likely increase.

Singapore was Australia's largest export market in 2006/07, followed by
Oman, Indonesia and Bangladesh. Like the butter export market, the WMP
export market is diverse, with the top six markets accounting for just
over half of total exports.

## Skim Milk Powder

### Production 

Production of skim milk powder is forecast to remain unchanged at 205
TMT, despite falling fluid milk production. High skim milk prices,
combined with the prospect of significant increases in 2007/08 have seen
SMP production hold firm while production of butter and cheese are
forecast to decline.

![](media/image5.wmf){width="5.885416666666667in" height="1.8125in"}

### Exports

Exports of SMP in 2007/08 are forecast to remain steady at 173 TMT,
largely unchanged from the previous year. Unchanged production, despite
falls in fluid milk production, is likely to see exports of SMP also
remain unchanged.

Malaysia was Australia's largest export market for 2006/07 according to
official trade figures. Singapore, Thailand and the Philippines were the
second, third and fourth largest respectively. The top five markets
account for just over half of total exports.

# Recent Reports from FAS/Canberra

The reports listed below can all be downloaded from the FAS website at:
<http://www.fas.usda.gov/scriptsw/AttacheRep/default.asp>.

  ---------- ----------------------------------------------------- ----------
  **Report   **Title of Report**                                   **Date**
  Number**                                                         

  AS7062     Issues Paper -- Safeguards Inquiry into Imports of    10/24/07
             Pig Meat                                              

  AS7061     Govt. Announces Safeguards Inquiry into Imports of    10/22/07
             Pig Meat                                              

  AS7060     ALP Wheat Marketing Proposal                          10/15/07

  AS7059     Ag Down Under Vol. 11, 2007                           10/15/07

  AS7058     Export Wheat Commission Established                   10/15/07

  AS7057     Sugar Semi-Annual                                     10/10/07

  AS7056     Biosecurity Australia -- Transitional Arrangements    10/09/07
             for Import Work Program                               

  AS7055     October Grain Lockup                                  09/28/07

  AS7054     Ag Down Under Vol. 10, 2007                           09/21/07

  AS7053     Livestock Annual                                      09/20/07

  AS7050     Ag Down Under Vol. 9, 2007                            08/31/07

  AS7049     Australia Battles Equine Influenza Outbreak           08/28/07

  AS7048     New Import Conditions for Seafood Products            08/20/07

  AS7047     New Regulations for Applying to Amend the Food        08/20/07
             Standards Code                                        

  AS7046     Cotton Quarterly Update                               08/20/07

  AS7045     New Report Released Supporting GM Crops               08/20/07

  AS7044     FAIRS Export Certificate Report                       08/20/07

  AS7043     Exporter Guide                                        08/15/07

  AS7042     Ag Down Under Vol. 8, 2007                            08/06/07

  AS7041     Grain Quarterly Update                                08/01/07

  AS7040     FAIRS Country Report                                  07/31/07
  ---------- ----------------------------------------------------- ----------