All this has dampened the ability of farmers to invest in their operations: the average cost of a natural disaster comes to about $1.4 million per farm, according to a recent farmer wellbeing survey by Norco and the National Farmers Federation (NFF).

“Business in Australian dairy is not easy,” said Norco chief executive Michael Hampson. “It’s not a high-margin game by any stretch of the imagination.”

Grocery retailers have also played a role in keeping consumer milk prices low. Supermarket giants Coles, Woolworths and Aldi introduced $1-a-litre milk around 2011, and the price of private-label milk didn’t budge until 2019.

In 2016, many Victorian dairy farmers exited the industry after the federal government’s response to that year’s drought was to initiate a water clawback plan in the Murray-Darling Basin, impacting water availability for farmers.

“The Murray-Darling Basin Plan has removed about 400 million litres of milk out of Victoria, just because of buybacks and water reforms,” said Billing. “That’s impacting communities up there as well, it’s not just the dairy farms.”

On top of that, dairy farmers keen to invest and expand their operations are faced with an unfriendly environment. The price of farmland has tripled in the past decade and hit record highs in 2023, according to Rural Bank. Fierce competition with farmers of other industries, such as beef and sheep, and difficulty obtaining loans has made it harder for dairy farmers to expand. Dairying land is also being purchased by Canadian superannuation funds and turned into timber plantations, Billing observed, reducing the amount of land dedicated to producing food.

The result has been a shrinking milk pool and dwindling exports. In 2004, Australia’s dairy industry produced 11 billion litres of raw milk, which fell to 9.3 billion in 2014, according to data from the Australian Dairy Products Federation (ADPF). The current season is estimated to fall around 8.3 billion.

In the past 18 months, more than 10 dairy processing facilities have announced closures. Norco is now the last fully farmer-owned dairy co-operative.

“The amount of milk that was bought and processed by 100 per cent farmer-owned entities has gone from probably 85 per cent to just Norco,” Hampson said.

Three of the big four dairy processors are foreign-owned: Fonterra is New Zealand-based, Saputo is Canadian, and Lactalis is French. Bega is an ASX-listed $1.3 billion entity.

Hampson says farmers are only one group of stakeholders among several that these corporations must juggle.

“For all these other [entities], it’s about offshore shareholders … and obviously requirements to pay dividends to those people, which means the motivations at play aren’t necessarily what they used to be 25 years ago, about supporting the farmer. It’s about corporate profits,” Hampson said.

Fallout

Despite efforts to encourage Australians to shop local, the cost of living crisis has driven shoppers to favour more affordable options. Products from New Zealand, where dairy farmers are paid less, are making their way to Australia.

And we’re consuming more of it: imported dairy products rose 17 per cent, largely from New Zealand, but also from the US and Europe, in the 2023 financial year. This means about 30 per cent – or 344,000 tonnes – of dairy that Australians consumed were from overseas, a 25 per cent jump from the year before according to ADPF figures.

At the same time, our exports fell by 16 per cent between February 2023 and January 2024 compared with the year before.

“Consumers, retailers and food service have clearly all accepted imported dairy products freely interchanging with Australian cheeses and butter,” stated the federation.

Fonterra did not make Oceania managing director Rene Dedoncker available for interview. In a statement, Dedoncker said he wanted to assure farmers that all existing supply contracts at the time of sale would be honoured in the event of any divestment.

“These contracts are vital to our business. Any purchaser of the business would then be obligated to comply with the terms of agreements until expiry of the term of the agreement,” he said.

Billing worries about what will happen to rural communities and jobs if Fonterra’s manufacturing sites are shut down.

“Cobden, Stanhope, Darnum [in Victoria] would nearly fall off the map, I think, if those processing sites didn’t exist. They’re large employers of those regional areas,” he said.

But he sees an opportunity for brands such as Western Star butter, born in western Victoria nearly 100 years ago, to be returned to Australian hands. “It’s an iconic Australian brand. It’s like Vegemite.”