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The Powdered Milk Roadmap

Introduction: The aim of this document is to roadmap the key social, economic and environmental issues associated with the processes involved in the delivery of powdered milk. These processes include the following stages, generation, production, distribution, retail and consumption and recycling/post consumption. Given the limited timeframe of this activity research has been conducted as a desktop activity only. Dairy farming is Australias third largest rural industry and is worth over $3.4 billion dollars annually. Of the milk produced over 11% is used in the production of Whole Milk Powder (WMP) and Skim Milk Powder (SMP). Of these powders the vast majority are exported to South East Asia (Philippines, Japan, Singapore and China) with only 20% consumed domestically. (Australian Diary Industry In Focus 2010)

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2 Product Need Export of Australian Milk Powder has increased steadily since 1993 due to increased demand from the Asian market. This has been influenced by a number of external factors including the poisoning of Chinese children by locally produced powders in 2008 (Xinhau/China Daily, 2011). Social issues: Australian Milk Powder is known for its high quality and consistency of product. Maintaining these standards is critical to ensuring that external demand continues. Brand management is essential to ensure that Australian powdered milk maintains its dominance in Asia. Actual or perceived slippage in quality is likely to significantly impact on demand. Environmental Issues: Increasingly Australians are becoming more aware of the impact that particular sectors have on the environment. Whilst maintaining an environmentally friendly brand is not vital to the Asian markets it is vital to domestic growth. Economic Issues: Recently in Australia the price of milk has been impacted by price warfare. This is a social and economic issue that has had significant impact on the sustainability of the diary industry. In early 2011 Woolworths initiated a program of heavily discounting milk that triggered a like response from Coles. The subsequent devaluing of milk has significantly impacted farmers profitability and has the potential to close farms impacting local communities and the broader community. (Sydney Morning Herald, 06 Oct 2011)

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3 Generation The majority of Milk in Australia is produced on diary farms that run an average of 220 cows. This national herd produces approximately 9,023 million liters of milk with 11% being used to produce WMP (Australian Dairy Industry in Focus 2010). Sustainability of dairy farming is dependant on a varied range of influences. Social Issues: There are a number of social issues impacting the dairy industry; these include issues associated with animal welfare, generation change, local impact and exploitation by resource companies. All of these issues have significant impact on the perception of diary farming by the wider community, the efficiency of production and the sustainability of production. One of the social issues facing diary farming is the humane treatment of the animals. Whilst the RSPCA notes that the Australian dairy industry does have good standards enforced by individual state legislation and Animal Welfare Units. (RSPCA, 2011) Of not there is no national standard addressing this issue. The RSPCA identified the following issues regarding animal welfare in dairy production; Separation of calves from their mothers shortly after birth and subsequent slaughter at as young as five days. Dehorning and docking of animals without anesthetic. Induction of calving causing harm to cows and calves. Lameness from poor farm conditions. Mastitis, or swelling of teats, from poor conditions. Live exports.

Another key social issue impacting on generation is the impact of pricing frictions on youth decisions to enter the dairy industry. Many farming families have children who are unwilling to continue the family farm resulting in closer and reallocation of the land for other purposes. Dairy farming plays a significant role in local rural economies. Farmers source resources from local providers and provide employment for a small number of locals. Closure of dairies has a significant impact upon local communities. A significant social issue impacting on the Diary industry is the implications of Coal Seam Gas (CSG) exploitation. Farmers in Northern NSW are concerned that CSG operations could pollute waterways devastating the industry. Farmers are faced with the ethical decision of working with the energy firms and running the risk of being associated with non green practices. (ABC Rural, 22 Sept 2011) Environmental Issues: Dairy farming is a resource intensive activity that can cause significant impact on the environment unless managed effectively. In addition the Diary industry is highly vulnerable in changes to the environment Jessica Yang SID#311177212 Fri, 21st Oct 2011 3

4 that may result in decreases in resources and increases in the price of energy. Some of the key environmental issues in the production process include: Soil Degradation of structure, erosion, salt panning, leeching of nutrients can all significantly reduce the soils ability to produce quality feed Chemicals Over use of fertilizers and other heavy chemicals can result in poisoning of wildlife, algae blooms and noxious weed growth. Effluent Can cause water pollution, poor water quality in local catchments, transfer of disease, reduction in fish and plant populations and cause deadly algae blooms. Water - Inefficiency in the use of water can degrade or contaminate groundwater stocks and increase costs if water is purchased. It can also contribute to poor living conditions for animals and inefficiency regarding heavy machinery. Diary farmers in Australia increased the efficiency of water consumption from 2004/2005 to 2007/2008 by 5% (Australian Dairy Industry 2007/08 Sustainability Report) Greenhouse Gas Emissions Dairying for Tomorrow report that dairy farming contributes 1.6% of national greenhouse emissions. Greenhouse gas release from animals is the primary source. The problem is increased significantly when animals are fed a poor diet of low quality grass. The clearing of native bush for pasture also compounds the problem. (Dairying For Tomorrow) Native Vegetation and Waterways Clearing of creeks and subsequent access by cattle destroys natural wildlife removing the native habitat of many indigenous species. In time this affects the biodiversity of the area causing issues that include increased salinity. Energy Consumption Dairy farming is energy intensive due to the requirement to heat water and cool milk. Pumping of water and lighting also contributes to high-energy consumption. The recycling of water also has a significant energy impost. Waste- Dairy farming produces a significant amount of waste. In the past these products were often buried in on farmland fill. These techniques have become unacceptable with the majority of waste being recycled or disposed of via commercial waste disposal techniques. Economic Issues: The recent devaluation of milk prices has had a significant impact on farmers profits; this in turn has impacted their ability to meet many of the high costs associated with implementing sustainable enterprise. This situation is unlikely to be resolved without government assistance. Land prices also impact upon the decision processes of farmers. The low prices of milk may cause some farmers to consider selling out to developers. This runs the risk of loosing dairy land to housing estates or non-producing hobby farms.

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5 In August 2011 The Australian Dairy Industry Council submitted a letter to the Federal Minister for Climate Change requesting that dairy farmers be omitted from paying the proposed carbon tax. Farmers believe that the tax will put even more pressure on an industry already under pressure from milk pricing wars and natural disasters (Daily Telegraph, 08 Aug 2011).

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6 Production Milk Powder is produced through a simple process of evaporation and drying. Very few chemicals are used in the process with the exception of powdered lactose and inert gas for packaging. Key to the sustainability of this process is a constant flow of milk, water and energy. Social Issues: Milk Powder processing plants are unlikely to cause significant social impacts other than on local employment. An average facility can employ up to fifty staff. Whilst Milk Powder processing facilities are not particularly noisy the delivery of fresh milk and the subsequent pickup of powdered products may impact local residents. Odour emissions are also not normally associated with the production process. Visually Milk powder processing plants are not particularly aesthetic with large structures that include a significant drying tower. Environmental Issues: The production process is resource intensive in that it consumes a significant amount of water and energy. However it is not known to have any significant waste outputs with the majority of water recycle on site or lost through evaporation (Tasmanian Dairy Products Co Ltd, 2011). Production of milk powder is the most energy intensive product line within the Australian Diary Industry. However, overall processing of milk products accounts for less than 15% of energy consumed in the overall diary industry (Dairy Australia, 2007/2008). Energy saving procedures can be employed throughout the process with Dairy Australia reporting a 9% drop in energy consumed at powder sites from 2004 to 2008 (Dairy Australia, 2007/2008). Packaging of powdered milk on facility is usually bulk in nature with the majority of powder sold in 25kg bags. Many suppliers then re distribute the milk into smaller bags. There is little waste caused by the packaging process. However, unpacking and repacking does cause inefficiencies. Economic Issues: Powdered Milk prices are driven by international prices, which are generally much higher than Australian fresh milk prices. Powdered milk processors benefit from low milk prices and high overseas powder prices but are also faced with the ethics of purchasing milk from farmers at wholesale prices.

Jessica Yang

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7 Distribution Social Issues: Heavy transport has significant impact on roads with poorly located facilities significantly degrading local roads and disturbing the local community. Facilities should be located to take advantage of existing networks designed for heavy transport. Environmental Issues: Distribution of powdered milk can have a significant impact on the environment if not managed effectively. Bulk loading of resources keeps costs down and ensures that larger amounts of product can be shipped with less fuel consumption. In addition close proximity to port and rail facilities can reduce dependency on less economical forms of transport such as trucks. Economic Issues: Price of fuel and carbon tax has the potential to impact negatively on the sustainability of the industry. More efficient forms of transport are required.

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8 Retail and Consumption Less than 20% of Australias powdered milk is consumed domestically with the majority of it being exported to Asia. Of the milk consumed within Australia the vast majority of it is used in bulk format. (Dairy Australia, 2010). Social Issues: Domestically powdered milk has a stigma associated with it as a poor persons product whilst in Asia it is seen as a must have commodity for an expanding middle class. Some key social issues associated with the export of milk powder products in Asia include: Lack of control over the end product. May be broken down and contaminated in process out of companies control resulting in inferior product associated with the brand. Price hiking by distributors outside of Australia.

Exporting to Asia is fraught with inefficiencies caused by cultural and bureaucratic inefficiencies including the requirement for bribes and corruption. These obstacles are likely to significantly impact market sustainability and growth. Environmental Issues: Efficiencies are likely to be caused by the subsequent break down of milk powder into smaller consumer focused sizes in Asia. This is likely to cause significant wastage and may result in labeled packaging disposed of inappropriately. Economic Issues: Whilst fresh milk prices in Australia remain low and powdered milk prices in Asia remain high the milk powder market will remain export focused. However, should confidence in the Chinese Dairy industry grow this market may be swamped.

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Post Consumption and Recycling Domestic post consumption activities are likely to differ greatly between local and export markets. Social Issues: Attempts to promote recycling of international exports is unlikely to be effective due to the focus of developing nations growth rather than environmental issues. Environmental Issues: Whilst recycling of domestic containers can be influenced it is highly unlikely that Asian consumers will recycle packaging. For these markets biodegradable packaging may be an option, however it must be balanced with the requirement to protect the product for a long duration in a humid environment. Recommendations: This powdered milk roadmap, whilst only a desktop activity, identified the following key recommendations; 1. Requirement for a single national standard regarding the welfare of dairy cattle. 2. Government investigation on the impact on the milk price wars on small-scale dairy farms. 3. Government investigation into the impact of the carbon tax on the dairy industry. 4. Research into cheaper and more effective water management on small to medium dairies. 5. Significant research into the impact of Coal Seam Gas on the dairy industry.

Jessica Yang

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Fri, 21st Oct 2011 9

10 References: Dairy Australia, Australian Dairy Industry In Focus 2010, accessed 19 Oct 2010, http://www.dairyaustralia.com.au/~/media/Documents/Statistics-andmarkets/Australian%20Dairy%20Industry%20in%20Focus/2010/Australian%2 0Dairy%20Industry%20In%20Focus%202010.ashx Chinas milk powder imports jump, accessed 20 Oct 2010, http://www.chinadaily.com.cn/business/2011-09/15/content_13710098.htm Sydney Morning Herald, Alexandra Smith, Farmers see milk war as a glass half empty, 06 Oct 2011 http://www.smh.com.au/national/farmers-see-milkwar-as-a-glass-half-empty-20111005-1l9q8.html RSPCA, Does the RSPCA have animal welfare standards for diary production?, accessed 21 Oct 2011, http://kb.rspca.org.au/Does-the-RSPCAhave-animal-welfare-standards-for-dairy-production_343.html ABC Rural, Coal Seam Gas traumatising farmers, Miranda Saunders, <http://www.abc.net.au/rural/nsw/content/2011/09/s3323450.htm> Dairying For Tomorrow, DairySAT, accessed http://www.dairyingfortomorrow.com/index.php?id=90 21 Oct 2010,

Diary Australia, Australian Dairy Manufacturing Industry Sustainability Report 2007/08, accessed 21 Oct 2011, http://dmsc.com.au/wpcontent/uploads/2011/03/admsr0708.pdf The Daily Telegraph, Steve Lewis, Carbon tax will milk dairy farmers, 08 August 2011, http://www.dailytelegraph.com.au/news/carbon-tax-will-milkdairies/story-e6freuy9-1226110437341 Tasmanian Dairy Products Co Ltd, Milk Powder Processing Facility, Development Proposal and Environmental Management Plan, accessed 21 Oct 2011, http://www.epa.tas.gov.au/file.aspx?id=26608

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Figure 1.01 Jessica Yangs Milk Powder Roadmap

Jessica Yang

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Fri, 21st Oct11 2011