Australia should focus on maximising the utilisation of milk protein rather than on producing as much cheese as possible. This is according to a report by Rabobank on the Australian dairy sector. Due to a decline in milk supply in the country, milk processing capacity has been scaled back in recent years, whilst cheese production has become increasingly important for the Australian dairy sector. This poses a risk, as adding value to cheese is becoming increasingly difficult, according to Rabobank.

The decision to produce a relatively higher proportion of cheese was a deliberate strategy on the part of the Australian dairy industry. This made the sector less exposed to price fluctuations on the world market, leading to more stable margins. However, it also meant that less milk protein was available for other processing purposes.

According to the bank, the price of cheese is too low, competition is too fierce and growth in cheese consumption is too slow. The price of whey protein, on the other hand, is at a record high. This means that cheese production remains relatively attractive. If the price of cheese falls and the price of whey returns to a more normal level, cheese will become less attractive. The profitability of cheese production increasingly depends on the utilisation of whey.

The milk price for Australian farmers will increasingly depend on the extent to which processors can utilise milk protein for value-added applications. Absolute processing capacity is less important, Rabobank concludes.