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New directions for Australian dairy heifer exports as Chinese market slows

Rabobank

The live export of dairy heifers – particularly to China – has been a lucrative market for Australian dairy farmers in recent years, offering significant trade opportunities and attractive prices for dairy cattle.

 

But with Chinese demand for dairy heifers waning – as China grapples with an oversupply of domestic raw milk production – and trade risks around Australia’s live export policy, the future prospects for the sector are far less certain, according to a new industry report by Rabobank.

 

In its just-released report, New directions for Oceania live dairy cattle exports in a slower market, the agribusiness banking specialist says bearish farm sector fundamentals in China – a market that is irreplaceable – point to slower trade for the foreseeable future.

 

Report author, RaboResearch senior dairy analyst Michael Harvey said from 2013 to 2023, exporting dairy heifers to China – as the country moved to build its domestic milk production – has provided a lucrative opportunity and income diversification for both Australian and New Zealand dairy farms.

 

“The recent boom in Chinese import demand and subsequent high prices came on the back of a wide-ranging industry revitalisation strategy implemented by the Chinese government in 2018. This strategy very successfully fuelled farm expansion and herd building,” Mr Harvey said.

 

Trade had been cyclical over the past decade, with import volumes peaking in 2022 (at 233,00 head for Australia and New Zealand combined). But by 2024, trade volumes had slowed significantly.

 

“The growth journey of China’s milk supply – a key driver of increased heifer exports – is at a critical juncture. The industry is grappling with an oversupply of raw milk, leading to falling local milk prices and lower farm profitability,” he said.

 

The Rabobank report said moving forward, a recovery in Chinese heifer demand is possible. However, it will require a combination of improved milk prices, increased farm profitability, and further government policy to support farm expansion and herd rebuilding.

 

“For Australian dairy farm businesses engaged in the live dairy heifer export sector, this era of sluggish trade may require a reconsideration of breeding programmes and strategic goals,” he said.

 

Other export markets

 

With China having consistently accounted for more than 80 per cent of all heifer export numbers from Australia and New Zealand, the hunt may well be on for new and emerging market opportunities, the report says.

 

The Rabobank report said collectively, the Southeast Asian markets – including Singapore, Malaysia, Thailand, Indonesia, Vietnam, and the Philippines – are a large milk-deficit region, with self-sufficiency rates ranging from one per cent to 50 per cent.

 

Based on RaboResearch modelling, the combined import deficit totalled more than 10 billion litres of liquid milk equivalent in 2023.

 

“More recently,” Mr Harvey said, “there has been a renewed focus on local herd expansion and milk supply growth – through private and public investment – across some Southeast Asian economies to specifically address supply chain and milk price risks.

 

“This initiative secures a small but steady flow of live dairy heifer exports into the region.”

 

The report says reduced demand from China for dairy heifers provides a more attractive opportunity for buyers in Southeast Asia, which might lead to an increase in trade moving forward.

 

However, Mr Harvey said as history shows, the Southeast Asian region cannot replace China in volume terms, with annual volumes never surpassing 25,000 cows.

 

Australian Policy watch

 

In Australia, the report said, the broader policy environment around live exports also provides a cautionary tale about trade risk for the dairy heifer trade.

 

“While there has been no shift in policy on the live exports of dairy cattle, in May 2024, the federal government announced that the export of live sheep by sea from Australia will end on 1 May 2028,” he said. “And this is another consideration those involved in Australia’s dairy sector trade need to take into account.”

 

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RaboResearch Disclaimer: Please refer to our Australian RaboResearch disclaimer here

 

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Rabobank Australia & New Zealand Group is a part of the international Rabobank Group, the world’s leading specialist in food and agribusiness banking. Rabobank has more than 125 years’ experience providing customised banking and finance solutions to businesses involved in all aspects of food and agribusiness. Rabobank is structured as a cooperative and operates in 38 countries, servicing the needs of more than nine million clients worldwide through a network of more than 1000 offices and branches. Rabobank Australia & New Zealand Group is one of Australasia’s leading agricultural lenders and a significant provider of business and corporate banking and financial services to the region’s food and agribusiness sector. The bank has 90 branches throughout Australia and New Zealand.