Australia: Push for Organic Dairy Production

Australian Dairy Farms Group (AFDP)’s deal to pack organic yoghurt on behalf of a rising New Zealand company further ensconces the Camperdown dairy manufacturer into the organic dairy food sector.

ADFG surprised the dairy industry by announcing in March it was turning over its six highly productive dairy farms to organic milk production and was launching into organic infant formula production for the Australian and international markets.

A number of dairy companies have been scrambling for more than a year to secure scant existing supplies of organic milk in Australia.

ADFG chief executive officer Peter Skene said the switch to organic was a well thought out plan. Mr Skene said the six dairy farms were producing 17 million litres of conventional milk from 3500 cows on 1460 hectares of Western District farmland to feed into the company’s processing plant in Camperdown.

He said Australian Dairy Farms Group saw the need to get into branded products once it bought Camperdown Dairy in April, 2016. It launched Jersey milk, free range milk, butter and yoghurt under the Camperdown Dairy brand. But after developing its brand with conventional milk products, it was logical to go one step further.

“We have seen bottled milk become highly commoditised in terms of pricing,” Mr Skene said.

“The price of milk is now 30 per cent less that what it was 10 years ago but costs have increased.”

“We had a choice: go to higher volume, lower cost milk or differentiate. We decided that organics was a way of differentiating our business.”

Mr Skene said there were 40-50 million litres of organic milk being produced in Australia. If ADFG’s farms produced 15 million litres of organic milk, they would have a sizeable share of that market rather than being swamped in a 2.3 billion litre market for conventional milk.

The company was also watching trends in other markets around the world. Mr Skene said 10 percent of the retail food in Denmark was organic. But it was also more affordable for consumers, which helped drive consumption.

“The price differential between organic and conventional dairy products is about 20-30 percent in the US and Europe — much lower than here,” he said.

“Lower premium pricing helps drive the model, so we have to deliver products (in Australia) at a lower price.”

“Our view is that the organic market will continue to grow,” Mr Skene said.

“People are becoming more concerned about chemicals, sprays and the treatment of animals.”

ADFG has identified infant milk formulas as the best opportunity for its organic milk. Whereas some companies use a “dry” blending of adding nutritional ingredients to organic milk powder and packaging it for sale, ADFG is considering a “wet” blending process.

Mr Skene said wet blending involved mixing ingredients into organic milk when it came into the plant then drying the product into a powder for packaging.

ADFG is to build a new plant at Camperdown, but the feasibility on the type of drying equipment has yet to be completed. Mr Skene said the company was trying to align the timing of when the new manufacturing plant would come on stream with the conversion of conventional milk production to organic milk on their farms — a three-year process.

“We don’t need them all producing organic milk from the start (of the plant),” he said.

Mr Skene was confident Australian Dairy Farms Group had made a good decision to convert to organic dairy production. “We are hoping that in 10 years’ time, we will be producing more than 50 million litres of milk and be a pure organic play,” he said.

Ecovia Intelligence Comment
There is high demand for organic dairy products in Australia and New Zealand partly because of export markets. Asian consumers are increasingly seeking organic foods, however there is low production in the region. Australian producers are well positioned to feed this ‘organic market’.

Source: Weekly Times / Ecovia Intelligence (01/08)