Reasons for Farm Expansion and Exit Intentions in Australian Dairy

Dairy is the fourth-largest and one of the most vital rural industries in Australia, with a majority of milk production occurring on the southeast seaboard in Victoria, New South Wales, and Tasmania.

However, statistically, milk production in 2022 was estimated to fall to 8.55 million metric tons (MMT) which are forecasted to fall by another two per cent in 2023 and reach 8.4 million metric tons. The decrease is anticipated despite a significant rise in the prices of farm gate 2022/23 that are expected to surpass the previous record and generally favourable seasonal conditions for dairy producers before the forecast year. Due to labour shortage, dairy farms are unable to benefit from these variables, which will impact output in 2023. As a result of the decline in milk output and the anticipated increase in milk fluid exports in 2023, factory use consumption of milk is expected to decline to 5.535 MMT from an expected 5.685 MMT in 2022. However, Australia is focusing on its processed milk products towards cheese production which is expected to set steadily in 2023. But, the volume of butter, skim milk powder, and whole milk powder production and exports are expected to drop slightly in 2023.

Like every industry, there are both opportunities for growth and expansion and reasons to exit the industry altogether. In this blog, we have discussed the reasons that influence the same.

Let’s Begin!

Farm Expansion and Exit Intentions: An Overview

Farm expansion is a farming operation’s decision to enhance the scale of its operations by acquiring additional land, equipment, or livestock. Done usually to enhance profits and farm’s efficiency. Another reason that promotes farm expansion is the desire to face risk and enhance resilience in market fluctuations or weather events.

On the other hand, exit intention is the decision to discontinue dairy farming operations. Since it generally involves changing the mode of livelihood that has been an integral part of the family for generations, exit intention can be quite a challenging decision for farmers. That said, there can be several reasons why farmers may choose to exit the dairy industry.

Farm Expansion and Exit Intentions: Reasons

Farm Expansion

· The prime reason behind farm expansion is the desire to enhance profitability. With the increase in the cost of production, farmers need to find ways to enhance their returns to stay profitable. Expanding their operations allows farmers to achieve economies of scale, allowing them to spread their fixed costs over a large production volume. This leads to low production costs and enhanced profits.

· Enhancing operational efficiency is another reason for farm expansion. Usually, large operations have modern technology and equipment, which helps minimise labour and production costs. Besides, large farms have better access to supply chains and distribution networks, resulting in higher product prices.

· Additionally, farmers also expand their operations to take advantage of new market opportunities. For example, in case there is a high demand for organic dairy products, farmers can expand their operations to produce organic milk, thereby increasing their profits and partaking in the competition.

Exit Intentions

· Contrarily, there are several reasons that influence farmers to quit the industry, financial pressure being the prime reason. The increased cost of production may challenge small farmers to partake in the competition and remain profitable. Besides, changing market conditions like increased competition or a in demand can lower milk prices, enhancing financial pressure on the farmers.

· Other reasons for exit intentions include environmental pressures, health issues, and the desire to retire. Since the dairy industry is becoming more regulated, farmers might find it difficult to meet environmental requirements, leading to increased costs and reduced profitability. At the same time, health problems might not permit farmers to continue their farm operations and retiring farmers may choose the industry to enjoy retirement.

Wrapping Up,

Regardless of any of the above-mentioned reasons, it is essential for farmers to consider their options before making any decision about their future in the dairy farming industry.

To help make an informed decision, you would need access to an extensive farmer database of successful Australian farmers who have been in agribusiness for a long. Contact us at KG2, Australia’s largest independent farmer database that enables farmers and industries to leverage the most comprehensive agribusiness database.