“This is not just an industry issue — it is a food security issue, a regional development issue and a national economic issue,” Jason said.
He said under a high buyback scenario of over 600 gigalitres, milk production in the southern basin could fall by up to 15 per cent, equating to a loss of up to 270 million litres of milk annually.
“In dry years, farm earnings could fall by more than 500 per cent for our farmers and critically for dairy processors, we will face reduced milk supply, rising costs, and an increased risk of plant closures,” Jason said.
He said the dairy sector as a stand-alone industry had been excluded from basin plan data, leaving a significant gap.
It has previously been lumped in the pasture grazing category, with ABARES acknowledging uncertainty with their data.
And there is a lot to lose.
The southern basin is home to more than 40 dairy processing facilities, from small boutique type operations to large volume processing.
“We employ almost 2000 people directly across eight local government areas and process milk produced outside the basin, particularly in northern Victoria, where we are well located to service national consumer and export markets,” Jason said.
“Our unique vulnerability is not adequately recognised in any basin plan review.”
As a consequence, Dairy Australia and the Australian Dairy Products Federation jointly funded an evidence-based analysis and independent report by Ricardo.
“The findings are serious, and the report is clear — further buybacks will impact dairy farmers and result in further consolidation within the processing sector,” Jason said.
The report found a buyback of 683Gl would reduce the southern basin consumptive water pool by about 16 per cent and drive water allocation prices up by as much as 40 per cent.
A smaller buyback of 302 Gl would still reduce the pool by about eight per cent and increase prices by up to 17.5 per cent.
“These impacts are not limited to those who trade water — every dairy farmer who relies on irrigation is affected and, in turn, every dairy processor,” he said.
“Higher water prices flow through to higher production costs, reduced herd sizes, and ultimately lower milk output.
“Farmers with little or no entitlement ownership are particularly exposed, facing rising input costs and a limited ability to absorb them.
“In some cases, farms could lose up to 40 per cent of their earnings before interest and tax, this is not marginal adjustment — we are talking about structural exits from the industry.”
Jason said processors sit at the centre of the supply chain and when they were impacted, consequences ripple far beyond the farm gate.
“Processors rely on consistent volumes to operate efficiently,” he said.
“When milk production declines — whether by three per cent or 15 per cent — it directly affects plant utilisation and lower throughput means higher per-unit processing costs.”
He said processors were forced to travel further to collect milk, increasing transport costs and logistical complexity.
“In some cases, milk may need to be sourced from entirely different regions, this adds cost, emissions and undermines the efficiency of the entire system,” Jason said.
Australian processors operate in a highly competitive global market and compete with imported dairy products and price sensitivity from domestic consumers.
Over time continued rising input costs erode profitability and investment capacity and with a shrinking productive pool, further consolidation in the processing sector is likely.
“Plants designed for a specific volume become uneconomic at lower throughput and once a processing plant closes, it is rarely reopened and the consequences cascade through the community.”
Milk processing supports a network of jobs and businesses including farmers supplying milk, the transport industry, feed and fertiliser suppliers, maintenance contractors and local service industries.
When a plant closes the entire ecosystem is disrupted and jobs are lost, local spending declines, regional communities weaken and once infrastructure is lost, it is incredibly difficult to rebuild.
Jason said a one-size-fits-all approach to water recovery does not work and dairy has unique characteristics that must be recognised in basin plan implementation.
“Uncertainty is a major barrier and there is no clarity on how, when, or where further buybacks will occur.”
