Australia Dairy Output Falls as Cheese Exports Rise

Australia’s dairy sector is expected to face another year of declining milk production in 2026, even as strong demand for cheese continues to support processing margins and export opportunities, according to the latest USDA Foreign Agricultural Service (FAS) Dairy and Products Semi-Annual Report. The report forecasts Australia’s milk production at 8.45 million metric tonnes (MMT) in 2026, down from an estimated 8.55 MMT in 2025, reflecting ongoing herd contraction, challenging seasonal conditions and structural pressures on the industry.

The USDA noted that the decline in milk output is being driven by a shrinking dairy herd and reduced availability of manufacturing milk in key production regions. Despite lower milk supplies, farmgate milk prices remain relatively strong, helping producers manage ongoing cost pressures and maintain profitability.

Cheese continues to emerge as the standout performer in Australia’s dairy sector. The report projects cheese exports to increase to 175,000 tonnes in 2026 as processors prioritize higher-value products to maximize returns from limited milk supplies. In contrast, production and exports of milk powders are expected to remain under pressure due to constrained milk availability.

Domestic fluid milk consumption is expected to continue its long-term decline, reflecting changing consumer preferences and mature market conditions. However, demand for value-added dairy products remains relatively resilient, supporting investment in premium dairy categories.

Industry analysts note that Australia’s dairy industry is increasingly shifting toward a value-over-volume strategy, focusing on premium cheese, specialty dairy ingredients and export-oriented products rather than expanding overall milk production. This trend mirrors developments in several mature dairy-exporting nations where processors are seeking higher margins from limited milk pools.

The outlook comes amid broader uncertainty in global agriculture, with rising input costs, weather variability and geopolitical risks continuing to influence production decisions. While Australia remains a relatively small milk producer by global standards, it continues to play an important role in international dairy trade, particularly across Asian markets. (USDA Apps)

Source: Dairynews7x7 10 June, 2026 Read full story here

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