The latest Dairy Australia (DA) Situation & Outlook comes at a time when the world is awash with milk, geopolitics are affecting input costs and cost-of-living shapes demand. DA expects milk production to decline by around 2% in 2026-27 as high input costs, geopolitical instability and weather risks constrain growth. Despite a late‑season recovery in 2025–26, ongoing conflict‑driven fertiliser and fuel price pressures are likely to limit farmers’ ability to expand output.

Meanwhile, farmer confidence has improved, but elevated cost structures and uncertainty around input availability will temper production intentions in the coming year. If the Middle East conflict resolves quickly and weather remains favourable, production could decline by only 1%, but sustained high costs or a dry season could push the fall toward 3%.

Domestic dairy demand remains stable, with over 95% of households purchasing dairy and consumers favouring value‑driven, protein‑rich products despite cost‑of‑living pressures. Category shifts are expected to continue, with growth in cooking cheese, Greek yogurt and butter offset declines in blended spreads and entertaining cheeses. Plant‑based dairy alternatives are likely to remain stagnant as higher prices and nutritional concerns push consumers back toward traditional dairy.

Export demand is projected to stay solid but with limited upside, as global inflation and strong supply from New Zealand and the US constrain Australia’s market share.