Australian dairy industry is the third largest agricultural industry, with 7.6% share behind wheat and beef (Figure 6). In 2015/16, 9.54 billion litres of milk produced in Australia from 6,000 farms, gaining a gross value of $4.3 billion (3). Figure 7 illustrated the percentage of raw milk used to produce different dairy products.
Two key factors influence profitability of dairy farms in Australia: 1) Milk price – affected largely by international dairy commodity price trends since the deregulation of milk price in 2000/01, and increase in global trade of dairy products. (3) The farmgate milk prices received by farmers vary significantly depend on incentive or penalty payments that are set by the processors related to milk quality (milk fat and protein solids content), productivity and year-round milk supply. 2) Seasonal condition – dairy farms are predominately operated as pasture-based system, in which amount of rainfall would have impact on pasture availability. (3) Hence drought may decrease both quality and quantity of pastures, lower carrying capacity of pastures, and result in decrease in milk production and so profit.
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The drought in 2002/03 and 2006/07, caused financial loss to the farmers. Slight recovery in 2007/08, but decline again with a sharp drop of milk prices in 2009/2010. Followed by strong farm incomes in 2010/11 and 2011/12, however another fall in 2012/13 caused by adverse seasonal conditions, subsequent increased in international dairy commodity prices, resulting in lifting milk prices up high in 2013/14. Recently financial performance is gradually declining due to lower milk prices and bad seasonal