Strategic Plan 2013/ /16

Transcription

1 Strategic Plan 2013/ /16

2 Dairy at a Glance National Dairy Herd (end 2012/13 forecast) Average Herd Size Milk Annual Production Average Annual Milk Production Per Cow Dairy - Australia s 3rd Largest Rural Industry Australian Per Capita Consumption 1.61 million cows 240 cows 9,350 million litres 5,818 litres $4 billion value at farmgate $9 billion at wholesale & export pricing Drinking milk 106 litres Cheese 13 kgs Dairy Industry Workforce Direct employment of 45,000 Milk Utilisation Dairy - Major Export Industry Cheese 34 per cent SMP/butter 28 per cent Drinking milk 25 per cent WMP 11 per cent Casein/butter 1 per cent Other 1 per cent 38% of milk production is exported Value = $2.76 billion 7 per cent of world dairy trade 5th largest exporter Major Markets For Australian Dairy Products (Tonnes) Production Of Main Commodities (tonnes) Australia 2,825,700 t (incl. 2,385,000 of drinking milk) Japan 115,000 t Greater China 109,000 t Singapore 90,000 t Indonesia 48,000 t Malaysia 47,000 t Milk Powders 371,000 t Cheese 340,000 t Butter (CBE) 120,000 t Glossary Acronym Description Acronym Description ABV Australian Breeding Values NCDEA National Centre for Dairy Education Australia ADF Australian Dairy Farmers NFF National Farmers Federation ADIC Australian Dairy Industry Council NGO Non Government Organisation ADPF Australian Dairy Products Federation NPV Net Present Value AOP Annual Operating Plan NRM National Resource Management BCR Benefit Cost Ratio OH&S Occupational Health and Safety BMCC Bulk Milk Cell Counts PAG Policy Advisory Group CRC Cooperative Research Centre PKMS Project and KPI Management System CSIRO Commonwealth Scientific & Industrial Research Organisation POS Probability of success DA Dairy Australia R&D Research and Development DAFF Department of Agriculture, Fisheries and Forestry RD&E Research, Development and Extension DIAL Dairy Innovation Australia Ltd RDC Research and Development Corporation DM Dry matter RDP Regional Development Program FBM Farm Business Management RO Research Organisation FTA Free Trade Agreement SDFO State Dairy Farmer Organisation GGF Geoffrey Gardiner Foundation SMP Skim Milk Powder H1 Horizon 1 SP1 Strategic Priority 1 H2 Horizon 2 SP2 Strategic Priority 2 H3 Horizon 3 SP3 Strategic Priority 3 HR Human Resources SFA Statutory Funding Agreement H&N Health & Nutrition TRG Trade Reference Group ITC Information, Technology & Communications UHT Ultra High Temperature KPI Key Performance Indicator VET Vocational Education and Training LRS Levies Revenue Service WMP Whole Milk Powder 1 Dairy at a Glance/Glossary

3 Managing Director s Foreword It is my pleasure to present Dairy Australia s Strategic Plan for the period 2013/14 to 2015/16. Dairy Australia remains committed to its vision of delivering the world s best services in order to grow an internationally competitive, innovative and sustainable dairy industry. The 2012/13 season has challenged the Australian dairy industry, as lower farm gate prices have combined with increased input costs, and difficult seasonal conditions in key dairying regions have seriously tested the resilience of farm businesses and families. These conditions have constrained production, which will finish at approximately 9.3 billion litres, a little lower than 2011/12. As the season draws to a close, tightening international supplies are seeing a rapid increase in commodity prices. This combined with a weakening Australian dollar should translate to higher farm gate price during 2013/14. Our industry remains in a favourable position. Our opportunities include the increased demand from Asia for dairy produce, product innovations and the achievement of greater production efficiencies. Like any industry, however, we will not be without challenges. These are likely to include currency volatility, rises in input costs, protection offered to competitor exporters, animal and food activism, changes in consumer preferences and the ongoing demand for a skilled workforce. This Strategic Plan focuses on building the foundations to support resilience and growth. Our priorities are clear and concise: making farm businesses more profitable and competitive; protecting and promoting our industry, and growing skills and capability. I am excited by the opportunities the future holds and have every confidence that we will achieve meaningful outcomes through ongoing collaboration across the industry and through the implementation of this Strategic Plan. Ian Halliday Managing Director Dairy Australia Strategic Plan 2

4 Contents Dairy At A Glance 1 Glossary 1 Managing Directors Forward 2 1 Executive Summary 4 2 Introduction Purpose Context: Supporting Policy and Studies Context: Industry Support Structure Context: Role of Dairy Australia Vision and Mission 14 3 Industry Context / Trends / Outlook Overview Domestic Environment Commercial Environment Farm Operation & Profitability People Other Key Issues International Markets Key Issues 28 4 DA Strategy Overview Investment Strategy Investment Structure and Allocation Expenditure and Allocation 35 5 Detailed Initiatives SP1: Increasing Farm Profitability and Competitiveness Overview Farm Margin Improvement Manufacturing Margin Improvement Market Support and Insights SP2: Protecting and Promoting our Industry Overview Industry Promotion Industry Protection SP3: Grow and Capability Overview Capability Development Workplace Strategy, Planning and Coordination DA Supporting Activity DA Operations 52 6 Expenditure Allocations & Returns Alternate Views of Expenditure Allocation Planned Returns Project Portfolio Balance Risk Return Spread Time Horizon Risk Profile Government R&D Priorities Collaborative Expenditure 59 7 DA Operational Strategy Budget Planning Delivery and Overhead Costs Planned Reserves Dynamic Budget/Funding Flexibility Organisation Structure & People About Dairy Australia s People Organisation Structure Governance, Compliance and Risk Management Governance Framework Board Governance and Compliance Reporting Risk Management Corporate Communication IT, Systems & Processes Performance Management and Evaluation 73 References 74 Attachments 76 A SWOT Analysis/Strategy Response 77 B Project Listing 81 C Strategic Program Key Performance Indications 85 3 Section title

5 1 Executive Summary The Australian dairy industry is facing a range of challenges at both local and international levels. Dairy Australia (DA) is in the process of making directional and project level changes to its program of work to best support the long term sustainability of the industry. This document outlines the strategy for investment over the years 2013/14 to 2015/16. Role / Constraints: DA s role is to fund and manage precompetitive activities that are important to the future of the dairy industry but would not occur effectively or efficiently if the market was left to its own resources. These are typically in the areas of R&D, extension, capability, trade and regulatory support, central data collection and pre-competitive promotion. Scope / Objective: DA receives almost $34 million annually from levy payers and $19 million in matching research and development funds from the Australian Government. State Governments, universities, research organisations and other dairy support organisations, contribute approximately a further $30 million to DA funded projects. As such, it is the objective of DA to responsibly invest these funds in a way that best addresses stakeholder needs and supports the future sustainability of the industry. Strategic Issues: The key current and longer term issues facing the industry are as follows: Increasing herd productivity offset by declining fertility and animal health/ milk quality issues Farm performance High dollar and global instability resulting in increased commodity pricing pressure & volatility Global Economics Lack of investment in processing infrastructure over the last decade has undermined Australia s cost competitiveness globally, especially with regard to NZ Industry underinvestment Increases in farm input costs including the costs of fuel, fertiliser, purchased feeds and electricity Input costs Dairy Supply Chain Market concentration Leverage of large retailers dominates supply chain and impacts milk pricing Access to and availability of new technologies including genomics, automation, ITC Access to technology Climate change Decline in service funding Emerging social trends Social/regulatory pressures in the areas of health, ethical and environmental, are emerging that are not generally positive to dairy Generally less favourable climate for dairy farming in some geographical areas; access to water in irrigation zones A decline in capacity of services to dairy farmers, including a winding back of state government-based extension services Dairy Australia Strategic Plan 4

6 Investment Strategy: DA s strategy addresses the key on-going and emerging issues facing the industry that are within DA s remit. While the current program of work remains appropriate in general, DA will make changes to internal structures and investment priorities to better address these emerging issues, especially those identified by the Horizon 2020 study. While farm profitability remains the highest priority, the revised strategy places an increased emphasis on the issues of sustainability and reputation management as part of the industry s licence to operate. The objective will be to impact existing negative industry sentiment, improve farmer confidence and encourage investment in both financial and human capital. The Legendairy promotional program is a new and important element of this approach with the target audience including dairy farmers, consumers and the key influencers of our society. In this regard, Sustainability is the key harmonising theme improved profit, environmental and social outcomes are at the core of strategy for a successful industry. The approach is to have a cohesive strategy that places the right level of investment/effort into each of these areas. The following diagram summarises the new strategy as focused on 3 Strategic Priorities: 5 Executive Summary

7 Key Drivers Domestic Dairy Landscape Global Dairy Landscape Strategy Farm profitability impacted by: > > increasing input costs and seasonal variability > > managing volatility in milk price > > greater complexity in farming systems > > increasing public scrutiny on farmers Demand for dairy products in increasing but competitiveness impacted by: > > strong Australian dollar > > global volatility > > adverse trade arrangements % of Project Expenditure 59% 20% 18% 3% DA supporting Strategic Priority SP1. Profitable & Competitive Dairy Farms SP2. Protect & Promote our Industry SP3. Grow Capability & Skills Investment Focus 1. Farm margin improvement > > Animal performance and fertility > > Feedbase and nutrient use efficiency > > Resource management > > Farm business management 2. Post-farm margin improvement > > Processor productivity and innovation 3. Access to profitable international markets 4. Providing market information and insights > > Supporting industry decision making 1. Demand enhancement > > Promoting the benefits of dairy to consumers 2. Encourage a positive industry culture 3. Industry reputation management > > Maintaining dairy s licence to operate 4. Risk management > > Identify, monitor and help manage issues impacting the industry > > Contribution to industry policy 5. Understand, measure and support industry sustainability 1. Workforce planning and action > > Providing the dairy industry with the people it needs 2. Skills and knowledge > > Supporting training and education 3. Career pathways development 4. Leadership > > Development of industry leaders 5. Extension > > Transfer of technology, skills and resources to farmers Investment Theme Creating industry prosperity Enhancing livelihoods Supporting communities Investing in dairy people Industry Sustainability Ensuring health and safety Improving wellbeing Maximising nutrition Caring for our animals Reducing environmental impact Reducing environmental footprint Dairy Australia Strategic Plan 6

8 Funding Allocation: In total, DA is budgeting to spend $181 million over the 3 year period with expenditure anticipated to exceed income during this period, which will drive reserves towards approved minimum levels by end of the 2015/ The $114 million of available project investment funds over 3 years has been structured against three strategic priorities with a clear focus on SP1 (Increasing farm profitability and competitiveness) with 59% of the 3 year expenditure, driven by the direct needs of dairy farmers. The SP2 activities of protect and promote (risk management and demand encouragement) account for approximately 20% of spend and SP3 (growing capability and skills) with 18%. Project expenditure directed towards DA s communication with stakeholders and its statutory requirements accounts for 3%. This distribution of funds is seen as a responsible balance between short-medium term stakeholder objectives and longer term sustainability issues. The following table summarises the changes and focus of investment: 2 Dairy Australia s Investment Strategy 1 Strategic Priority 1 (59%) 2 Strategic Priority 2 (20%) 3 Strategic Priority 3 (18%) 4 Dairy Australia (3%) 1 DA Strategy SP1: Increasing farm profitability and competitiveness > Continue to invest in innovation and productivity improvement at farm and processor level to support improved industry profitability and long term sustainability, with a strong emphasis on extension activities to drive adoption. > Continue to support activities that assist in maintaining or improving access to international markets. > Continue to provide a central source of useful information to help support decision making about future direction. SP2: Protecting and promoting our industry > Invest more into Legendairy activities to foster a positive culture within the industry and positive community sentiment towards the industry to protect dairy s licence to operate. > The Dairy Industry Sustainability Framework reporting will provide transparent credible evidence to support the Legendairy key messages. > Define the health and nutrition benefits of dairy consumption and communicate these messages to consumers and key community influencers. SP3: Growing capability and skills > Continue to invest in activities that build industry capability (farm, processor, R&D) and help maintain or attract people to the industry. > Ramp-up of leadership educational initiatives. > Maintain and build extension services, despite reductions in co-funding, to fully capitalise on investment in other program areas. 7 Executive Summary

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11 Introduction 2.1 Purpose Context: Supporting Policy and Studies Context: Industry Support Structure Context: Role of Dairy Australia Vision and Mission 14 Dairy Australia Strategic Plan 10

12 2.1 Purpose This Strategic Plan covers the financial periods 2013/14 to 2015/16. In the past, DA has produced a rolling five year strategic plan and financial forecast but following an external review (GHD, October 2011), DA has now moved to a three year planning cycle as recommended. This will allow more agile responses to immediate and medium term investment priorities. Having a more focussed strategic planning period will also drive a more balanced portfolio of investments. DA will continue to scan the external operating environment for longer term macro-trends and events that present both challenges and opportunities for the industry. The Strategic Plan is the primary document in a suite of documents that describe DA s strategic direction and annual activities (see Figure 1). It deliberately contains sufficient detail to be self contained and form the basis for the other documents. DA has reviewed its strategic priorities against achievements to date, the operating environment, the priorities of government and the needs of industry. This plan focuses on three enduring strategic priorities: > SP1. To help dairy farmers become more profitable and competitive. > SP2. To protect and promote our industry. > SP3. To grow skills and capability. DA continues to engage in a wide breadth of activities across the supply chain, including natural resource management, climate change, international trade and market development, policy and regulatory analysis and issues management. In particular, sustainability - in its fullest definition - is a key focus for the organisation. Whether it is enhancing livelihoods, improving wellbeing or reducing our environmental impact, the tenets of sustainability are drivers of DA s investment activities. Sustainability is a vital component of realising our strategic objectives. All of DA s investment decisions are designed to contribute towards the growth of an internationally competitive, innovative and sustainable dairy industry. Summary Presentation DA Strategic Plan 2013/14 15/16 Summary Document Annual Operating Plan (AOP) 2013/14 Strategic Program Summaries 2013/14 Project Listing 2013/14 Figure 1: Strategic Planning Documentation 11 Introduction

13 2.2 Context: Support Policies and Studies The Strategic Plan draws upon a range of resources and consultations to inform the operating environment and establish industry priorities. These resources include: > Horizon 2020 > Situation and Outlook > Stakeholder tracking > Dairy Moving Forward (Guide much of our SP1 farm related programs) > Rural Research and Development Policy Statement > Australia in the Asian Century > Australian Dietary Guidelines > National Food Plan > Murray Darling Basin Plan > Industry organisations: Australian Dairy Farmers (ADF), Australian Dairy Industry Council (ADIC), Australian Dairy Products Federation (ADPF), Regional Development Programs (RDP), the National Farmers Federation (NFF) > Correspondence from the Minister for Agriculture, Fisheries and Forestry to DA. Of these, the Horizon 2020 study has been specifically aimed to assist in raising the sights above short term issues which have affected industry priorities in recent years. Undertaken by a working group that included a range of industry stakeholders including farmers, the Horizon 2020 work highlighted the need for the industry to actively position itself for the challenges and opportunities of the future, and identified areas for industry investment and collaboration. DA Strategy Horizon 2020 Stakeholder Tracking Dairy Moving Forward Sustainability Framework Situation & Outlook In Focus Australia in the Asian Century National Primary Industries Research, Development and Extension Framework National Dietary Guidelines Australian Dietary Guidelines Murray Darling Basin Plan ADIC ADIC ADPF RDPs NFF Rural Research and Development Policy Statement Figure 2: Supporting Policies, Documents and Studies Dairy Australia Strategic Plan 12

14 2.3 Context: Industry Support Structure 2.4 Context: Role of Dairy Australia DA is one of a number of organisations that support the dairy industry and it is important that these organisations work in concert. The industry vision cannot be achieved in isolation and DA is committed to working closely with organisations such as ADF, State Dairy Farmer Organisations (SDFOs), ADPF, the Geoffrey Gardiner Foundation (GGF), the RDPs, as well as other Research and Development Corporations (RDC). As such, formal consultation about strategic priorities and on-going communication with regard to the strategic plan has been undertaken, including: > ADF and farmer representative attendance at DA s Strategy Forum in October 2012 > ADF National Council review of draft Strategic Plan in April 2013 > Regular liaising with ADF and ADPF > Feedback from the RDPs and larger supplier programs. DA is constituted under the Dairy Industry Service Reform Act 2003, and is the national services body for dairy farmers and the industry. The remit of the organisation is to fund and manage central pre-competitive activities that are important to the future of the industry but would not occur effectively or efficiently if the market was left to its own resources. This would typically be in the areas of RD&E, capability, trade and regulatory support and pre-competitive promotion. In essence, DA s role is to help farmers adapt to a changing operating environment, and achieve a profitable, sustainable dairy industry. This includes: > Supporting productivity initiatives and facilitating innovation on farm to improve profitability. > Gaining market intelligence and analysis to help farmers prepare and plan for the future. > Creating and maintaining access to preferred high value export markets. > Facilitating innovation across the supply chain to improve efficiency and profitability. > Encouraging consumption of dairy products through protecting and promoting our industry and implementing health and nutrition programs. > Protecting the reputation of the dairy industry and encouraging demand for its products. Figure 3: Diagram of support organisations in the dairy industry 13 Introduction

15 2.5 Vision & Mission The Australian Dairy Industry s vision: Grow an internationally competitive, innovative and sustainable dairy industry Dairy Australia s Vision: To deliver the world s best services towards achieving the industry vision Dairy Australia s Mission: To develop and drive industry services and innovation for the ultimate benefit of levy payers Dairy Australia Strategic Plan 14

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17 The Industry: Context / Trends / Outlook 3.1 Overview Domestic Environment International Markets Key Issues 28 Dairy Australia Strategic Plan 16

18 3.1 Overview The dairy industry continues to be one of Australia s major rural industries. Based on a farmgate value of production approaching $4.0 billion in 2011/12 (approximately $9.1 billion at wholesale & export pricing), it ranks third behind the beef and wheat industries. It is estimated that approximately 45,000 people are directly employed on dairy farms and by dairy companies within Australia. Related transport and distribution activities, and research and development projects, represent further employment associated with the industry. Dairy is also one of Australia s leading rural industries in terms of adding value through further downstream processing. Much of this processing occurs close to farming areas, thereby generating significant economic activity and employment in rural and regional Australia Growth Expectations Strong growth characterised the dairy industry through the 1990s, but that growth has stalled in the last decade. In the meantime, our major export competitor New Zealand, has expanded significantly (see Figure 4). The industry has experienced a slow recovery from drought with rains returning in recent years replenishing storages and restoring irrigation levels. Milk production growth in 2011/12 of 4% was the strongest in a decade, but 2012/13 will see approximately a 2% reduction due to dry conditions in SE Australia. The outlook for 2013/14 is for modest production growth to between 9.4 and 9.6 billion litres, based on surveyed herd growth intentions, cow condition and assuming normal seasonal conditions offset limited fodder reserves. Southern exporting regions should lead growth given positive global prices. Production in domestic supply regions is likely to be flat in response to market signals and uncertainty around supply contracts. Based on production intentions for three-year growth recorded in the 2013 National Dairy Farmer Survey and assuming reasonable seasonal conditions and prices, milk production could range between 9.8 and 10.2 billion litres by 2015/ Profitability and Pricing Increasing levels of market and margin volatility of the industry (see Figure 5) in the last five to six years has served to undermine confidence in the outlook for many farmers who are seeking reliable returns on which to build a longer term future. Australian dairy farmers operate in a deregulated and open market and have done so for over a decade with the only government involvement being administration of food standards and safety assurance systems. Consequently, international markets and prices are the major factors determining the price received by farmers for their milk. At an average of just over US$40 per 100kg of milk in 2012, Australian dairy farmers generally received a price comparable to many of the major producing countries (see Figure 6). While farmers experienced approximately a 10% drop in farmgate pricing in 2012/13, the projections for 2013/14 suggest strong opening milk prices (up 15-20%) which may be tempered later in the year due to export competitive pressures. Australia s competitive position has changed over recent years. Farm cost structures have increased in response to the need to adapt to drier conditions, with rain fed pastures contributing a lower proportion of the total feed available. Despite the increased rainfall in the last couple of seasons, farm cost structures have not returned to those of a decade ago for a range of reasons. At the processor level, lack of volume growth has resulted in a lack of infrastructure expenditure leading to little or no productivity gains. Consequently, Australia s share of international trade has trended lower as local milk production has contracted over the past decade. Reversing this trend is now a major focus of DA s strategy. The following domestic and international trends, opportunities and challenges will shape the Australian dairy industry and the investment environment for DA during the three-year period of this Strategic Plan. 17 The Industry: Context / Trends / Outlooks

19 1991 = ML ( 000) New Zealand Australia (p = projection) Figure 4: Milk production - Australia and New Zealand Earnings Business Net Worth Figure 5: Annual change in dairy farm performance, Australia USD/100kg Canada Australia EU-25 EU-27 New Zealand US (p) Figure 6: International Farmgate Milk Prices 3 Dairy Australia Strategic Plan 18

20 3.2 Domestic Environment Regional challenges remain, especially where drinking milk is the focus: Significant differences exist between the industry s geographic regions (see Figure 7) from both a natural resource and economic perspective. The WA, QLD and northern NSW regions are closely tied to the fresh drinking milk market (see Figure 8), with a requirement for more expensive year round supply systems on farms. Retailer strategies (as described later) have direct impact on farmgate pricing. In other regions there is volume manufacturing capacity (cheese and powders) and farmgate pricing is much more closely linked to the international commodity prices. There has been a trend towards consolidation of manufacturing in SE Australia which is unlikely to be reversed. The only significant new investment in capacity that has occurred in recent times is in Tasmania, with $250 million invested by a number of companies resulting in a 40% increase in processing capacity in that State. Murray Goulburn Cooperative is set to invest as part of its move into the fresh milk market and is also expanding its UHT capability to meet increasing Asian demand. The recently announced arrangements between industry co-operatives and a major retailer may lead to changes for the drinking milk supply market, with new processing capacity intended in Melbourne and Sydney. The touted price premium may provide more dairy farms with improved profitability and longer term financial certainty but this is yet to be proven. In any case, addressing the diversity of needs across Australia s dairy regions is one of the key challenges in delivering appropriate research, development and extension services. DA cannot always adopt a one-size-fits-all approach when considering RD&E investment. Figure 7: Dairy Regions in Australia Per cent Drinking Milk Manufactured product QLD NSW VIC SA WA TAS Exports Figure 8: Use of milk by region and source 4 19 Section The Industry: title Context / Trends / Outlooks

21 3.2.1 Commercial Environment Pressure on white milk pricing: Over the past 5 years, branded milk has increased in price by an average of 1% annually. Simultaneously, private label milk has fallen towards the $1/L mark (-4% average reduction) and farmgate prices have suffered a similar decline (-4%). The strategies of the major retailers reflect the value-seeking behaviour of Australian consumers who are still spending cautiously despite recent interest rate cuts. The $1/L strategy of a major retailer is a loss leader approach aimed at improving market share in a highly concentrated but competitive food market. The recent strategies of the major retailers will help support on-going low priced house brands. These strategies will inevitably damage the sales of branded milk to the benefit of house brands, and enhance the power of the retailers in the local milk supply chain. DA has limited ability to impact retailer strategies but it can help improve farm profitability via investment in the development of new and higher margin products and on-going productivity improvements on farm and within the processor sector Farm Operation and Profitability The profitability of many dairy farm businesses is again under pressure: Post drought profitability (see Figure 10) has been undermined by rising farm input costs (fuel, fertiliser, purchased feeds and electricity) and the squeeze on farmgate milk price. Currently, farm profitability is highly variable with a range between -3% and 17%. Volatility in income has resulted in many dairy farmers taking a year-to-year perspective on farm financial performance rather than wealth creation over the longer term. International competitiveness is important for all dairy farmers regardless of whether they supply a domestic or export orientated market as no Australian market or geography is protected from high-quality, lower-cost competitors. A positive future for the Australian dairy industry involves achieving on-farm business success while operating internationally competitive farm systems. Australian feedbase competitiveness has eroded: Low cost production of home grown pastures and forages has underpinned the competitive advantage of Australian dairy farmers in global milk production. However, feed costs comprise the largest proportion of on-farm variable costs, and have increased significantly over the past 20 years. Continued productivity gains are needed in the production of home grown feeds and in the conversion of these resources and bought-in supplements, into milk protein and fat to maintain this advantage. Estimated home grown feed consumption per hectare is still low compared to potential pasture yields. There has not been a significant change in average pasture or forage consumption over the past decade and there is considerable opportunity for the majority of dairy farmers to improve profit from their existing pastures, forages and supplements. Effective natural resource management is increasingly important: The efficient use of resources and energy is an increasing issue for Australian dairy farmers both in terms of cost control and to meet community expectations for environmental performance. The sustainability of nutrient use, particularly nitrogen, is expected to escalate based on experiences in overseas dairy industries. Climate change provides added uncertainty for dairy farmers and an additional risk which erodes profitability. Managing climate variability is, and always has been, part of managing a dairy farm and the best preparation for an uncertainty is a comprehensive risk management plan. Improved on-farm efficiency is vital for farm profitability and managing climate challenges. 2.5 Total Branded Milk Total Private Label Milk Farm gate prices 2.0 $ per litre (p) Figure 9: Trends in milk retail pricing $ 000s (25) (50) (75) 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13(p) Farm business profit Farm cash income Figure 10: Australian dairy farm financial performance 6 Dairy Australia Strategic Plan 20

22 The genetics industry is evolving: Genetic improvement is a critical source of cumulative productivity gain in the Australian dairy industry (see Figure 11) and has contributed up to one-third of productivity gains over the past two decades. However, fertility has declined over the same period. Developing highly profitable and sustainable dairy cattle is a clear priority. Actual gains from genetic improvement have fallen short due to: > Fragmented industry structure. > A shortage of high quality data in key priority areas and from key sources. > A lack of integration of genetics with other elements of the production system. These shortfalls can be addressed by DA programs. The environment in which bull selection and breeding decisions are made has changed markedly in the past decade, and the introduction of genomics and genomic breeding values has added an additional dimension to this changing environment. There remains a need to further investigate support for: > Increasing the use of Artificial Insemination > Herd recording > Progeny testing and Australian Breeding Values (ABV) > Addressing obstacles to these practices on-farm. The artificial breeding industry is undergoing significant global change and this market place is rapidly evolving. Australia is a small artificial breeding market on a global scale, representing about 8% of the US domestic semen market. On the global front, there have been a number of commercial and technological developments of consequence for the Australian dairy industry, including: > Development of the Grasslands Alliance a joint venture between CRV Western Europe (Netherlands, Belgium, Germany, France), CRV Ambreed (New Zealand) and National Cattle Breeding Centre (Ireland). > Emerging technologies, e.g. genome editing, gene sequencing. > Emerging product development e.g. closed nucleus breeding programs (self contained genetic pool). > Emerging product differentiation, e.g. proprietary traits that could be used competitively in the market. It is DA s role to monitor these developments and assist in technology transfer to the Australian industry in a timely fashion. Managing animal welfare issues is an on-going requirement: Although there has been variation between breeds and countries, dairy cow fertility has declined globally since around DA s InCalf Data Project (2011) showed that the Australian 6-week in-calf rate decreased by approximately 1% per year over the decade The control of mastitis and lowering of somatic cell counts continue to be raised as important issues by dairy farmers and milk processors as improved management of this disease has direct and obvious financial and milk quality benefits. Other animal health issues such as lameness, heat stress, Bovine Johne s Disease and Pestivirus continue to be relevant to the Australian dairy industry, but vary in their importance over time and between regions. On-farm management of these animal health issues, and emerging diseases such as Theileria and Mycoplasmal infections, will continue to be supported by DA through ensuring farmers have access to practical management advice. Similarly, on-farm change in relation to animal welfare will continue to be supported by DA to promote industry recommended practices for priority animal welfare issues - tail docking, bobby calf welfare, disbudding, calf management, induction, lameness and downer cattle. Average annual milk yield per cow (L) 5,800 60% 6 week in-calf rates Milk yield per cow (L) 58% 5,600 56% 5,400 5,200 5,000 4,800 4,600 54% 52% 50% 48% 46% 44% 42% 6 week in-calf rates 4, % Figure 11: Average Output per Cow and Fertility 7 21 The Industry: Context / Trends / Outlooks

23 3.2.3 People Skill requirements are changing: The industry has been experiencing consolidation for some time (see Figure 12) and on-farm skills are changing to meet the demands of larger, more commercially oriented farming. Larger farm scale has meant that many farms now employ people other than family. Turnover is relatively high in the industry and many dairy businesses report that they have difficulty in attracting and retaining skilled people, and that this is a constraint to business growth and wealth creation. Investing in programs and activities that attract, retain and develop people in the dairy industry is vital to its success. Farmer confidence is a critical issue: The combination of market conditions has led to a general decline in farmer confidence over the last 2 years (see Figure 13). Nonetheless, farmers on average have longer term growth intentions. Part of DA s role is to help foster a more positive culture in the industry to underpin future growth Other Key Issues Innovation in processing remains important: As in the farm sector, the milk processing sector is undergoing continuing rationalisation. Initially, this resulted in improved factory capacity, larger operations and economies of scale. However, over the last decade, milk supply constraints have resulted in under-investment in technology and scale in Australian dairy factories resulting in reduced unit cost competitiveness when compared to New Zealand and other international competitors. On-going investment in manufacturing productivity via Dairy Innovation Australia Ltd (DIAL), will be an element of DA s strategy to improve industry profitability. Ownership: Farmer-owned co-operatives account for one third of Australia s milk production and it is unlikely that foreign ownership at the processor level will increase during the next few years. However, it is anticipated that foreign ownership (especially Asian) at farm level may increase over the forecast period. Relevant policy issues must be riskmanaged: There are a range of policy areas with the potential to impact operations and costs of Australian dairy producers (animal health and welfare, bio-security, food safety, environment, climate change, natural disaster relief, genetically modified foods, health & nutrition & labelling, labour, trade policy, R&D, infrastructure, fuel & energy, taxation, etc). The key areas of government policy affecting the dairy industry have been in the areas of water reform and carbon pricing: > Water Reform: A draft Murray Darling Basin Plan was delivered in late 2012 and will affect water availability and affordability, particularly for farmers in shared irrigation districts. This represents a significant but not insurmountable productivity challenge if dairy farmers are to maintain and grow their production in these regions. DA has a key role to provide information and findings that support robust and well informed debate on this issue. 14, No. of registered dairy farms Average herd size 12, , No. of farms 8,000 6, No. of cows 4, , / /02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 (p) Figure 12: No. of farms and average herd size % positive about future Investment intentions next 12M 80 Production intentions more in 3Y 250 Per cent Figure 13: Trends in Farmer Confidence 9 Dairy Australia Strategic Plan 22

24 > Carbon Tax: This new tax was implemented in mid-2012 and directly impacts larger dairy companies. While agriculture is not covered by the tax, farmers are being affected through higher electricity costs. Milk companies with limited ability to pass on costs are likely to pass back the carbon price to farmers. Funding partnerships are changing: State government-based extension services have been winding down over the past decade and this decline is now accelerating. Individual States are at different stages on this continuum but the South Australian government has already completely exited provision of dairy extension services. At the same time, extension roles and responsibilities within the public, private, collective (levy) and vocational education and training (VET) sectors are changing. DA foreshadows a growing impact of the private and VET sectors on the extension and change management agenda in Australia and investment must be aligned and supportive of this emerging change. For extension to be effective it must be well coordinated, and partnering amongst providers (public, private, collective and VET) is critical to achieving the impact that is required. Increasingly the challenge for extension is to be responsive to the opportunities of individual dairy farmers, but also to be clear in its role in driving and enabling change to focus on and meet clear outcomes and targets. Under the National Primary Industry Research, Development & Extension Framework, the outcomes of Dairy Moving Forward provide DA with a guide to effective investment across RD&E. Collaboration with research organisations locally and internationally also provides DA with the ability to stretch its funding as far as possible. Nevertheless, this reduction in available State Government funding means that DA must shoulder greater funding contribution to extension if the same level of services is to be provided. During the forecast period it is likely that DA may be forced to further prioritise investment in this area. 23 The Industry: Context / Trends / Outlooks

25 3.3 International Markets While Australia accounts for only 2% of the world s milk production, it is a significant exporter of dairy products. With export value of $2.76 billion (7% of global exports), Australia ranks fifth behind New Zealand, the European Union (EU) as a bloc, the United States (US) and Belarus. Over recent years Australia has exported 40-45% of its milk production, the lowest proportion since the mid-1990s, due to the reduced availability of product over these years Australia s export markets are concentrated in Asia, which represented 74% of the total Australian dairy export value in 2011/12. Japan is the single most important dairy export market for Australia, accounting for 19% of exports by value, followed by China (14%), Singapore (9%), Indonesia and Malaysia (6%). This concentration of Australian dairy exports to Asia is both a function of Australia s close proximity to Asian markets and the extent to which Australia is excluded from other export markets through direct and indirect trade barriers. Asian markets have considerable potential for dairy consumption growth as economies and diets become more westernised and Australian dairy companies have proven track records in supplying these markets over a number of decades. The Middle East and the Americas are also becoming increasingly important markets for many Australian exporters. 3 Export sales by region 1 Japan (19%) 2 China (14%) 3 South East Asia (30%) 4 Other Asia (11%) 5 Middle East (12%) 6 Americas (4%) 7 Europe (2%) 8 Africa (2%) 9 Other (6%) Figure 15: Export Sales by Region 11 Sth East Asia Other Asia Europe Middle East Africa Americas Other Total $m $m $m $m $m $m $m $m Butter/AMF Cheese Milk SMP WMP* Other ** Total 816 1, ,757 Figure 15: Australian dairy exports by product by region 2011/12 10 * Also includes infant powder ** Includes consumer products such as icecream, custards etc and mixtures but excludes industrial/ingredients usage. Dairy Australia Strategic Plan 24

26 Exchanges rate position is improving: Substantial appreciation in the AUD exchange rate over the last decade has damaged export competitiveness, impacted export volumes, returns to exporters and subsequently returns to producers (see Figure 16). The slowdown in the mining sector and reserve bank monetary policy is now putting downward pressure on the dollar, which should have benefits for exporters. Nevertheless, Australian dairy industry s long-term growth and profitability is linked closely to its status as a world competitive producer and productivity gains must remain a key focus across the supply chain. In a small open economy policy responses are limited so it is even more important the dairy industry actively pursues wide-ranging improvements in productivity. EU issues not yet impacting SE Asia: While global economic uncertainty remains an important factor determining the demand for dairy products in the short to medium term, key emerging markets have so far been relatively unaffected by the global economic slowdown (see Figure 17). With a slightly improved economic outlook, demand from these regions is expected to remain strong into the foreseeable future. Commodity prices: International commodity prices have improved significantly since late 2012 driven by tight global supply and accentuated by drought on the North Island of New Zealand. With Australian product sold forward into the global market, the full impact of these prices was not fully reflected in 2012/13. However, these prices will influence where markets open in the 2013/14 season. Depending on weather patterns, the window of opportunity in which Australian dairy exports can recapture a significant global market share without a negative impact on market pricing could be available at least until late 2013 assuming New Zealand s milk production recovers with a strong season peak. Demand projected to exceed supply: Demand for dairy products will continue to grow with the expanding middle class in developing economies, changes in diet and increasing urbanisation, together with a rising global population. A large portion of this growth is occurring on Australia s doorstep ranging in an arc from the Indian sub-continent to North Asia. This provides a significant opportunity for Australian dairy producers. AUD AUD/USD Figure16: AUD/USD and Australian powder exports 12 Per cent Figure 17: Actual and projected GDP in Asia and Europe 13 USD/t /01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12 SMP WMP p Asia Developing Asia ASEAN Europe Cheddar WMP SMP Butter Jul 08 Jan 09 Jul 09 Jan 10 Jul 10 Jan 11 Jul 11 Jan 12 Jul 12 Jan 13 Jul kt Figure 18: Surveyed spot prices of Australian exporters ($US/t) The Industry: Context / Trends / Outlooks

27 In the second to last column in Figure 19, Unmet demand represents the estimated gap between projected global dairy demand and supply by 2021 (Horizon 2020). The expectation is that supply of dairy products will be unable to keep up with demand over the next decade. Australia will be one of a range of dairy exporters (EU, US and New Zealand) that will be competing for this additional demand. While Australia is geographically well positioned, price will be a key driver as the Asian market has low capacity to pay a premium. While Australia s geographic positioning (freight time and cost) and counterseasonality to the northern hemisphere offers some strategic advantage, it is likely that export success will relate more closely to: > Product quality > Green credentials > Production flexibility > Product specific differences. Commodity and value-added products: World milk powder demand grew on average by 6% over the last 5 years with whole milk powder and skim powder growing at around 4.4% and 9.9% respectively. Over this period Australian dairy export returns grew on average by only 1.7% annually. While growth in the demand for dairy commodities is expected to outstrip supply, realisable returns appear to be low. Hence, Australian exporters should also pursue product quality advantages or specialised products to preserve and improve average margins. Not a level playing field: Dairy is one of the most protected industry sectors globally with high tariffs and quotas and/or non-tariff barriers to trade. There is also the issue of subsidisation of competitor s exports by government programs. Such protection of dairy markets has become even more entrenched on the back of global food security concerns that have escalated since the global food price spike of 2007/08. Food price inflation is expected to continue to push up the price of food for the foreseeable future. EU and US policy reforms will also play a role in shaping future dairy trade flows as the removal of EU production quotas and the likely development of a new US Farm Bill signal a new type of engagement with the international market. DA s role is to monitor and understand the consequences of global market changes and assist the industry to protect or enhance market access. ML milk equivalent 70,000 60,000 50,000 40,000 30,000 20,000 10, EU NZ + AUS US Other Latin trio Unmet 2021 Figure 19: Estimate of Future Export Demand 15 ML Infant powder SMP Whey powder WMP Export returns ($/L) p Figure 20: Growth in global powder demand and Australian dairy export returns $/L Dairy Australia Strategic Plan 26

28 Bilateral trade agreements between countries: In the absence of any multilateral trade deal through the World Trade Organisation on the horizon, many countries have now turned towards bilateral and regional trade agreements as the next best alternative. These deals have left Australia s dairy exporters at a significant competitive disadvantage in key Asian markets. Korea has already completed bilateral trade agreements with two of our biggest competitors (the US & EU) and this has left Australia s dairy exporters at a significant competitive disadvantage in that market. Similarly, the NZ-China FTA has given New Zealand, one of Australia s largest competitors in dairy products trade, preferential market access in China. Nevertheless, Australia is currently engaged in nine FTA negotiations: five bilateral FTA negotiations, with China, Japan, Republic of Korea (ROK), India and Indonesia; and four regional FTA negotiations: the Trans-Pacific Partnership Agreement (TPP), the Gulf Cooperation Council (GCC), the Pacific Trade and Economic Agreement (PACER Plus), and the Regional Comprehensive Economic Partnership Agreement (RCEP). New technology needed to reduce costs: Over the last decade, milk supply constraints have resulted in underinvestment in technology and scale in Australian dairy factories as a result Australia is less competitive compared with processors in New Zealand, the US and Europe. With regard to on-farm productivity, the Australian dairy industry has made a significant long-term investment in the Dairy Futures CRC which is developing important technologies to enhance the productivity of cows and dairy pastures. Environmental: The impetus for food enterprises to implement sustainable practices is emerging due to pressure from both the wider community and major food corporations and retailers. Sustainability is no longer merely a marketing proposition or an element of corporate social responsibility, but a way of doing business. It has become a strategic approach to extract business value through risk management & resource efficiency. The strongest pressure in this regard is being applied by activist non government organisations (NGOs) on issues regarding animal rights and environmental impact. The outcomes sought in these areas affect public opinion (and product consumption) and regulation of business practices (which may reduce flexibility and efficiency). Maintaining relevance in the international marketplace: Australia s share of exports has fallen over the last decade and the international markets are beginning to question Australia s relevance as a global exporter. This has raised the importance of the Australian dairy industry providing assurances to our global customers that DA will continue to play a vital and ongoing role in delivering safe, nutritious, consistent and sustainably produced dairy products to the world market. 27 Section The Industry: title Context / Trends / Outlooks

29 3.4 Key Issues The findings from the Horizon 2020 study effectively summarise the key issues facing the industry: > The changing world economic order is driving rising demand for food commodities in the developing world. While incomes will rise in these markets, affordability will be the key to maintaining the role of dairy in addressing the nutritional needs of a significant proportion of the population. > The expanding world market for dairy products and ingredients provides significant opportunities for the Australian industry. While the market for dairy products will continue to grow, increasing climatic variability and pressures on natural resources is likely to constrain supply expansion. > The tight balance between supply and demand from large producing/exporting and importing regions will mean commodity prices will continue to be volatile. This, added to wider sources of uncertainty and instability from currency fluctuations, means input markets will continue to impact industry returns and farm incomes. Management within uncertainty has become a new skill requirement. > Australian dairy industry s competitors are moving quickly to galvanise their positions - shoring up effective trade alliances and integrated business models to take advantage of growing markets. In many cases this is being actively supported by governments pursuing trade agreements and facilitating strategic investments and market development. > Dairy s licence to operate and sell is being rapidly shaped by rising community expectations including positive animal welfare, environmental and social outcomes. Building trust with communities, customers and consumers will be more important in the future. This will require the general community having a greater connectedness with the industry and product, backed with credible evidence. Industry leadership in agricultural sectors worldwide is struggling to keep ahead of rapidly changing agendas and influencers. > Sustainability incorporating improved profit, environmental and social outcomes is at the core of strategy for successful multinational food companies and dairy farmers, as a focus on efficient resource use and positive and transparent practices. This is not a marketing fad or a source of differentiation for higher prices it is an important risk management strategy for progressive industry players. > Cultural change required: The current culture of the Australian dairy industry provides limited support or opportunities to celebrate success, with most attention focused on those who are struggling with the challenges of market and climate volatility. This is reducing the overall confidence of the farm sector in profitably supplying growing dairy markets and limits the attractiveness of the industry for investment of both financial and human capital. > Ongoing innovation is critical to future prosperity: Milk supply constraints over the past decade have contributed to an under-investment in technology and scale in Australia s dairy factories and this has hurt cost-competitiveness. It is imperative that the industry develops and leverages its ability to be flexible and agile, and seeks opportunities to service high value markets rather than seeking to compete on price alone. A SWOT analysis has also been undertaken as part of this review of the operating environment and as an input to strategy. The detail of the SWOT and its implications for DA s strategic direction can be found in Attachment A. Dairy Australia Strategic Plan 28

30 29

31 DA Strategy 4.1 Overview Investment Strategy Investment Structure and Allocation Expenditure and Allocation 35 Dairy Australia Strategic Plan 30

32 4.1 Overview DA s strategy addresses the key on-going and emerging issues facing the industry that are within DA s remit. While the current program of work remains appropriate in general, DA will make changes to internal structures and investment priorities to better address these emerging issues, especially those identified by Horizon While farm profitability remains the highest priority, the revised strategy places an increased emphasis on the issues of sustainability and reputation management as part of the industry s licence to operate. The objective will be to impact existing negative industry sentiment, improve farmer confidence and encourage investment in both financial and human capital. The Legendairy promotional program (see Section 4.2) is a new and important element of this approach with the target audience including dairy farmers, consumers and the key influencers of our society. The focus of DA s investment over the coming 3 years will be as follows: > Focus on farm profitability: As it has done since inception, DA will continue to place most of its focus and investment (59%, see Section 4.1) into projects that directly have the potential to improve the general prosperity of the industry, in particular on-farm. DA will continue to invest in innovation and productivity improvement at farm and processor level to support improved industry profitability and long-term sustainability, with a strong emphasis on extension activities to drive adoption. > The ultimate high level objective is the long-term sustainability of the industry. Sustainability is a complex concept with many components on-going industry profitability, food safety and security, animal welfare and ethical production, responsible use of natural resources, environmental footprint (carbon, energy, water, biodiversity etc). As the central investment manager, DA must responsibly allocate funds across this spectrum within a long-term (10 year) view of the industry. Strategically, DA will also provide investment into other key areas that support the long-term sustainability of the industry, namely risk management, capability building and reputation management. > Building trust with community underpins sustainability: A key strategy in winning ongoing respect and confidence from consumers, customers and community will be establishing effective emotional connections to maintain dairy s right to produce and sell. DA will invest more into industry promotion (LegendairyTM) activities to foster a positive culture within the industry and positive community sentiment towards the industry to protect dairy s licence to operate. This includes defining the health and nutrition benefits of dairy consumption and communicating these messages to key community influencers. > DA will continue to support activities that assist in maintaining or improving access to international markets including securing a more favourable and profitable export market environment for Australian dairy products, prevention of access erosion in key markets, and promoting awareness and active buyer preference for Australian dairy products. > Continue to provide a central source of useful information to help DA and industry stakeholders understand their industry and make informed decisions. > Maintain support of planning and education programs that support the on-going availability of skilled personnel to the industry. > Understanding our stakeholders: DA will invest in systems to enable improved stakeholder feedback on the value of its customer/stakeholder facing programs. > Effective use of funds: In a funding environment that is tightening, it has become increasingly important that DA uses its funds as effectively as possible. Under the National Primary Industry Research, Development & Extension Framework, the outcomes of Dairy Moving Forward provide DA with a guide to effective investment across RD&E. Collaboration with research organisations locally and internationally also provides DA with the ability to stretch its funding as far as possible. The Horizon 2020 study developed a number of strategic imperatives for the industry. Where appropriate, DA has responded to the recommendations in this plan, the detail of which can be found in Section 4: 31 DA Strategy

33 Outcome for industry Improved Farm Profitability We attract investment and good people What to do differently What will support this Relevant DA Strategic Programs > Develop effective processes to focus on whole of farm business outcomes over time > Facilitate R&D joint ventures on farm > Support a profitable growth agenda in response to an expanding dairy market > Create roadmaps to wealth, including entry pathways > Celebrate success on farm on wealth creation, sustainable practices and innovation > Develop new tools and supported decisionmaking > Partnership delivery of R&D Re-engineer knowledge systems and engagement > Target delivery of programs for effective investment > Sustain and widen dialogue on the future > Support the segment of the farm sector in the industry intent on growing wealth > Showcasing successful operators, targeting effectively for uptake by others > Animal Performance > Farm Business Management > Feedbase & Animal Nutrition > Attracting & Retaining People > Extension & Change Management > Sustainability Reporting > Farm Business Management > Manufacturing Margin Improvement > Attracting & Retaining People > Workforce Strategy, Planning & Action > Industry Promotion Australian Dairy exceeds community and consumer expectations > Adopt a front-foot approach to sustainability based on the industry s framework > Build industry esteem from within with positive image management > Celebrate success, support with simple rationale > Stronger emotional connect, not evidence overload > Industry Promotion > Industry Reputation Management > Sustainability Reporting > Re-engineer advocacy (resource, position, influence) to improve effectiveness > Improve, clarify leadership pathways > Clear areas of focus, improved ability to prioritise > Collaborate cross-industry to improve effectiveness of agriculture s lobby > Australian Industry Support > Industry Reputation Management We are competitive in markets of choice > Improve the commercial relevance of industry s collective processing innovation capabilities > Improve market signals and mutual understanding along the value chain > Develop a clear value proposition for collaborative efforts postfarmgate > Improve effectiveness of market information > Manufacturing Margin Improvement > International Market Support > Knowledge & Insights > Build a cohesive business case based on dairy s contribution to effectively engage Government in achieving beneficial trade outcomes > Develop comprehensive database and regional economic contributions > Ensure commercial support for trade agendas > Knowledge & Insights > International Market Support Figure 21: Horizon 2020 Outcomes Linked to DA Strategic Programs Dairy Australia Strategic Plan 32

34 4.2 Investment Strategy 4.3 Investment Structure and Allocation A key harmonising theme of DA s revised strategy for the period 2013/14-15/16 is Sustainability which derives from work on the Dairy Industry Sustainability Framework reinforced by the findings of the Horizon 2020 study. The approach is to have a cohesive strategy that places an appropriate level of investment/effort across three strategic priorities (SPs): > SP1 - Increasing farm profitability & competitiveness: Supporting local and international competitiveness to improve farm profit performance. > SP2 - Protecting and promoting our industry: Promoting the benefits of dairy products and managing industry reputational and culture issues. > SP3 - Grow capability & skills: Ensuring the industry s human resources have the skills to be productive and that there is an adequate supply of quality people. To simplify and better target the investment model, the number of Strategic Priorities (SPs) has been reduced from 4 to 3 (see Figure 23), their definitions narrowed and objectives defined. Achieving the outcomes within these Strategic Priorities will help build a platform for the dairy industry s return to profitable and sustainable growth. Furthermore, the key focus under SP2 (Protecting and Promoting our Industry) has become Legendairy which is described in detail in Section 4.4. These three Strategic Priorities are broken down into Strategic Objectives and Strategic Programs of work that generally match with the critical issues facing the industry as discussed earlier. Further simplification of the investment model has occurred via: > Reducing the number of Strategic Programs from 25 to 17. > Reducing the number of projects from 98 to 69. > Only allocating projects to a single Strategic Program rather than splitting projects between 2 or more Strategic Programs. Strategic Programs consist of a range of projects which are individually proposed and approved. The full list of projects can be found in Attachment A. Each of these Strategic Program areas is discussed in detail in Sections 4.3 onwards. Strategic Priority Strategic Objective Strategic Program SP1 - Increasing farm profitability and competitiveness Farm Margin Improvement Manufacturing Margin Improvement Animal Performance Feedbase & Animal Nutrition Resource Management Farm Business Management Alignment and Integration Manufacturing Margin Improvement SP2 - Protecting and promoting our industry Market Support & Insights Industry Promotion Industry Protection International Market Support Knowledge & Insights Industry Promotion Sustainability Reporting Australian Industry Support Industry Reputation Management SP3 - Grow capability and skills Capability Development Attracting & Retaining People Workforce Planning & Co-ordination DA - Supporting Activity DA Operations Communications Extension & Change Management Workforce Strategy, Planning & Action Statutory Requirements Figure 23: Investment Structure: Strategic Priorities & Programs 33 DA Strategy

35 Key Drivers Domestic Dairy Landscape Global Dairy Landscape Strategy Farm profitability impacted by: > > increasing input costs and seasonal variability > > managing volatility in milk price > > greater complexity in farming systems > > increasing public scrutiny on farmers Demand for dairy products in increasing but competitiveness impacted by: > > strong Australian dollar > > global volatility > > adverse trade arrangements % of Project Expenditure 59% 20% 18% 3% DA supporting Strategic Priority SP1. Profitable & Competitive Dairy Farms SP2. Protect & Promote our Industry SP3. Grow Capability & Skills Investment Focus 1. Farm margin improvement > > Animal performance and fertility > > Feedbase and nutrient use efficiency > > Resource management > > Farm business management 2. Post-farm margin improvement > > Processor productivity and innovation 3. Access to profitable international markets 4. Providing market information and insights > > Supporting industry decision making 1. Demand enhancement > > Promoting the benefits of dairy to consumers 2. Encourage a positive industry culture 3. Industry reputation management > > Maintaining dairy s licence to operate 4. Risk management > > Identify, monitor and help manage issues impacting the industry > > Contribution to industry policy 5. Understand, measure and support industry sustainability 1. Workforce planning and action > > Providing the dairy industry with the people it needs 2. Skills and knowledge > > Supporting training and education 3. Career pathways development 4. Leadership > > Development of industry leaders 5. Extension > > Transfer of technology, skills and resources to farmers Investment Theme Creating industry prosperity Enhancing livelihoods Supporting communities Investing in dairy people Industry Sustainability Ensuring health and safety Improving wellbeing Maximising nutrition Caring for our animals Reducing environmental impact Reducing environmental footprint Figure 22: Summary of the DA Strategy Dairy Australia Strategic Plan 34

36 4.4 Expenditure and Allocation Total expenditure over the 3 years of the plan is expected to be $181 million (see Figure 24). The $114 million available for project investment has been structured against the 3 priorities with a clear focus on SP1 (Increasing farm profitability and competitiveness) with 59% of the 3 year expenditure, driven by the direct needs of dairy farmers. The SP2 activities of protect and promote (risk management and demand encouragement) account for close to 20% of spend and SP3 (growing capability and skills) 18%. 3% of project expenditure is directed towards DA s communication with stakeholders and its statutory requirements. This distribution of funds is seen as a responsible balance between short-medium term stakeholder objectives and longer term sustainability issues. 3 4 DA supporting Delivery and overheads SP1 SP2 SP3 70, ,000 50,000 1 $ 000s 40,000 30,000 20,000 Dairy Australia s Investment Strategy 1 Strategic Priority 1 (59%) 10,000 2 Strategic Priority 2 (20%) 0 3 Strategic Priority 3 (18%) 2013/14 Budget AOP 2014/15 Budget 2015/16 Budget 4 Dairy Australia (3%) Figure 25: Forecast & 3 Year Plan Expenditure Figure 26: Three year project expenditure by Strategic Priority $ 000s 2012/13 Forecast 2013/14 Budget AOP 3 Year Plan 2014/15 Budget 2015/16 Budget 3 Year Plan Total DA Supporting 1,087 1,323 1, ,123 SP1 22,222 23,424 22,915 21,273 67,611 SP2 6,909 8,391 7,354 7,042 22,787 SP3 5,863 7,403 6,622 6,561 20,586 Project Total 36,081 40,540 37,916 35, ,107 Delivery + Overheads 19,215 21,682 22,224 22,780 66,687 Total Expenditure 55,296 62,222 60,141 58, ,793 Figure 24: Forecast and Planned 3 Year Expenditure 35 DA Strategy

37 Dairy Australia Strategic Plan 36

38 37

39 Detailed Initiatives 5.1 SP1: Increasing Farm Profitability and Competitiveness SP2: Protecting and Promoting our Industry SP3: Grow Capability and Skills DA Supporting Activity 52 Dairy Australia Strategic Plan 38

40 5.1 SP1: Increasing Farm Profitability & Competitiveness This section describes DA s strategic direction over the planned 3 years based upon Strategic Priorities to Strategic Program level. The projects and key performance indicators (KPIs) for each Strategic Program can be found in Attachments B and C respectively Overview Improved farm profitability is DA s top Strategic Priority (59% of planned expenditure - $67.6 million over 3 years) with a range of pre-competitive programs of work to support this goal. DA s role in enhancing the industry competitive advantage is comprised of the following strategic elements: > Farm margin improvement ($46.5m): Supporting productivity on-farm to protect and improve profitability across varied production systems. > Manufacturing margin improvement ($11.6m): Facilitate innovation across the supply chain to improve efficiency and profitability. > Market support and insights: ($9.5m) - Create and maintain access to preferred export markets. - Gain market intelligence and conduct analysis to help farmers and others prepare and plan for the future. A positive future for the Australian dairy industry involves achieving on-farm business success while operating internationally competitive farm systems. As can be seen in the allocation of funding, investments and activities to support increasing farm profitability are critical to achieving this outcome. The dairy industry is an integrated supply chain subject to variability in markets, climate and input availability. It is important that the industry has access to the latest knowledge and analysis on which to base its decisions and the best technology, practices and systems to enhance its ability to grasp opportunities and meet future challenges. Priority Objective Farm - Margin Improvement Strategic Program Animal Performance Feedbase and Animal Nutrition Resource Management Farm Business Management Alignment and Integration SP1 Manufacturing Margin Improvement Manufacturing Margin Improvement Market Support & Insights International Market Support Knowledge & Insights Figure 27: SP1 Investment Structure 39 Detailed Initiatives

41 5.1.2 Farm Margin Improvement Objectives: > Support programs, activities and information that contribute to increased farm profitability, competitiveness and greater control of input costs. > Deliver coordinated capability building for farmers and their advisers in key areas that underpin farm margin improvement. > Invest in research and development, including international collaborations, to address knowledge gaps in key areas, and to ultimately improve farm performance. Focus of Investment: The farm sector of the Australian dairy industry is delicately balanced between growing in response to the opportunities facing the industry and being constrained by a number of challenges. Farm profitability is highly variable across farming regions and between farms. For example in 2011/12, return on assets across Victorian farms varied from -3% to 17%. Production costs on many farms have grown as input costs have increased and changes to farm production systems have been implemented. Imperatives for productivity gains remain, driven by needs to improve both profitability and resource use efficiency. The challenges and opportunities that will need to be addressed to underpin future growth in production and productivity of the Australian dairy industry include increasing farm profitability and greater control of input costs. This has the dual benefit of improving confidence and a positive farm business culture with an emphasis on creating wealth; as well as increasing the international competitiveness of the Australian feedbase (including reducing the costs of production per unit of forage). It is also vital, people in the industry have the skills required to competently perform their roles and that there is rapid and widespread adoption of best practice and technology through innovative extension and change methods. Direction & Targets: DA s strategic response is to fund initiatives in the following areas to support the viability of dairy farming enterprises and establish the foundations for growth: Dairy Australia Strategic Plan 40

42 Strategic Objective: Farm Margin Improvement Strategic Program $ % of $ Strategic Direction 2013/14-15/16 Targets Animal Performance $14.5m 12.7% > Extending and increasing the use and reliability of ABVs to existing and new traits > Expand the animal data captured and aggregated for genetic evaluation and onfarm decision making > New approaches to selecting sexed semen based on prospective technologies > On-farm change programs to improve herd fertility and reproductive performance > On-farm change programs to control of mastitis and lower cell counts > Global research and development collaborations to improve herd fertility and reproductive performance and to control of mastitis and lower cell counts > Lift reproductive performance by 1% per year as measured by median 6 week in calf rate (from 50% to 55%) > 100% of annual average herd BMCC below 400,000 cells/ml and 85% of BMCC below 250,000 cells/ml > Genetic merit of national herd to improve by $10 per cow per year Feedbase & Animal Nutrition $14.0m 12.3% > Improve the profitable utilisation and integration of both purchased feed sources and home-grown feeds > Support for pre-commercialisation and commercialisation of pasture and forages to improve route to market and adoption > Develop forage cultivar evaluation and reporting mechanisms > Address poor performing pastures including through reseeding and renovation > A reduction in expenditure in RD&E associated with transition cow diets and management > No further investment in developing or accessing grains with nutritive characteristics to optimise nutrient use from grazed pastures or supplementary forages > A reduction in emphasis on more sophisticated analysis and testing of forages and supplements > Increase pasture consumption to 1 t DM/100ml rainfall or irrigation on 50% of dairy farms Resource Management $5.1m 4.5% > Increased nitrogen use efficiency in a whole farm context, including improved efficiency in feed production and in the animal resulting in reduced nitrogen losses. > A reduced focus on mitigation strategies to reduce greenhouse gas emissions and a shift to adaptation support > More than 60% of dairy farmers are using nutrient management plans to achieve high resource use efficiency Farm Business Management $1.6m 1.4% > Deliver coordinated farm business management capability building for farmers and their advisers > Expand the farm financial and performance data captured to support industry and onfarm decision making > More than 50% of farmers fully understand their financial position through appropriate tools and processes Alignment & Integration $11.3m 9.9% > Effective adoption of DA sponsored technology and innovation to improve levy payer profitability > To ensure investment in RD&E is coordinated to avoid duplication and maximise collaboration > Assist industry programs to set strategy and priorities and develop a framework for delivery of priorities within the DA role > Large supplier satisfaction that they have a say in their levy investment is > 5.5/10 > More than 80% Farmer awareness of RDP s being levy funded > More than 90% Farmer awareness of RDPs > Farmer satisfaction with RDP events is more than 6.5/10 Figure 28: Investment priorities for farm margin improvement 2013/14-15/16 The functional areas above are supported by Alignment & Integration. This investment provides support for RDPs and Dairy Moving Forward - key industry programs that contribute to priority setting, collaboration, capability building and delivery of programs. 41 Detailed Initiatives

43 5.1.3 Manufacturing Margin Improvement When compared to global markets, the Australian dairy manufacturing sector comprises small to medium sized processors. This lack of scale reinforces the need for a central mechanism for collaboration in the area of innovation and technology development. DA s role is to ensure that the overall strategic direction of central pre-competitive research and innovation is relevant to the industry s needs across all time horizons. Milk contains many components that have health and nutritional benefits. Isolating these components into new products offers the opportunity for higher product margins, but involves increased risk (both technically and commercially) for manufacturers. DA s support can help reduce the barriers facing dairy companies to make the most of these opportunities. Objectives: > To accelerate the delivery of an innovative, internationally competitive, profitable and sustainable Australian dairy manufacturing industry. > To provide Australian manufacturing with a strong integrated R&D capability that contributes to global competitiveness. > To improve margins for dairy manufacturers by targeting new product and process opportunities. Investment Focus: DA s ongoing strategy is to utilise Dairy Innovation Australia Ltd (DIAL) as the pathway for processing oriented investment. DIAL membership includes all major processors. This structure enables leverage of DA levy payer funding contributions by a factor of 4:1. During 2013/14 DIAL will review its model of operations to better reflect DA and levy payer expectation that provides DA with greater say over the direction of DIAL expenditure. There are five potential future projects to be considered to the value of $1.1m in this Strategic Program for 2012/13 relating to cheese yield, high solids evaporation, smart dewatering and benchmarking of waste. The key focus of DIAL investment is development and transfer of technologies to deliver value added products, smarter manufacturing processes and build knowledge and innovative capability. Highly leveraged investment in 2013 will allow core technologies in cheese manufacture, process efficiency, new product formulation and shelf life extension to be developed and delivered through established capability. DA will assist in the transfer of DIAL developed intellectual property into Australian manufacturing sites through streamed funding for this purpose in conjunction with company members co-investment. Improving their technology transfer capability will be an important focus for DIAL. The underpinning new products strategy focuses on isolating synergistic components to enhance benefits and command greater value. The strategy has deliberately moved away from isolating minor individual components to fractions containing multiple components, which typically also reduces the cost to manufacture and is a more natural fit with a functional food offering. There is a planned scaling back in the number of projects in this area to 2. The continuing projects are New Product opportunities with gut health benefits and Improving the industry uptake of high margin products. This provides a focus on the largest functional food market category (gut health) in which dairy is already well credentialed. The other project area aims to improve the uptake of such opportunities by industry. Strategic Objective: Manufacturing Margin Improvement Strategic Program $ % of $ Strategic Direction 2013/14-15/16 Targets Manufacturing Margin Improvement $11.6m 10.1% > Accelerated delivery of an innovative, internationally competitive, profitable and sustainable Australian dairy manufacturing industry > To provide dairy manufacturing with a strong integrated R&D capability that contributes to global competitiveness > Focus new product investment on Gut Health and industry uptake > More than $150million increase in 3 year project portfolio planned economic value to industry > More than 70% of DA s technology transfer projects delivering a commercial return > The ratio of DIAL s total membership revenue and the total value of DIAL s research activities > 1.1 > More than 50% of new ideas and innovation outcomes presented by DIAL converted into company specific development projects > More than 3 initiatives in DA s New Product area in which Australian dairy manufacturers are directly involved. Figure 29: Strategic Direction Priorities for Milk Processing Oriented Activity Dairy Australia Strategic Plan 42

44 5.1.4 Market Support and Insights A summary of the strategic direction and targets at the strategic program level is as follows: Strategic Objective: Manufacturing Margin Improvement Strategic Program $ % of $ Strategic Direction 2013/14-15/16 Targets International Market Support $5.1m 4.5% > Secured more favourable and profitable export market environment for Australian dairy products > Prevention of access erosion of opportunities and conditions in key markets > Foster a close awareness and active buyer preference for Australian dairy products > Dairy positions incorporated into all finalised bilateral and regional trade agreements > More than 50% of major exporters support marketing initiatives undertaken > TRG/ADF PAG signoff of program objectives/planned outcomes Knowledge & Insights $4.4m 3.8% > Information that is useful to stakeholders in their business decision-making is collected, analysed and made available > Information provides insights which improve strategic planning and program delivery for DA > Service rating for overall services is > 7/10 > Positive feedback, use of analysis and data in development and assessment of programs Figure 30: Market Support & Insights, Strategic Direction 43 Detailed Initiatives

45 International Market Support Exports represent 40% of dairy production and are the key pathway for industry growth. Under this program, DA seeks to maintain and enhance international market access for Australian exporters. Objectives: > To secure a more favourable and profitable export market environment for Australian dairy products through strategic trade policy reforms and agreements. > To prevent the potential erosion of access opportunities and conditions in key markets through the implementation of regulatory or policy changes. > In key export markets, support higher exporter returns by developing and maintaining industry level platforms that generate a close awareness and active buyer preference for Australian dairy products. Focus of Investment: DA will support government initiatives focused on trade agreements with all relevant countries and regions (within Asia: Japan, China, Korea, Indonesia, and India). This is critical to building long-term business partnerships and defending existing commercial positions. The global trading environment is becoming more challenging through an escalation of behind-the-border measures and technical trade barriers. Increased use of such non-tariff barriers in priority markets is affecting trade in agricultural goods including dairy products. Therefore, in negotiating these agreements, streamlining requirements and technical barriers is also important. For example, when tariff rate quotas are used, the administration of these quotas in Australia or in the importing country can be costly and burdensome as to undermine any competitive gains from having access to the quotas. Scope of effort: > Co-ordinate the development of industry positions/preferred approaches in key trade negotiations; facilitate their presentation to, and adoption by, national and international audiences. > Provide direct technical support to government/industry negotiators in strategic trade negotiations and disputes that affect Australian dairy s competitiveness or conditions of access to preferred markets. > Provide a policy/market access help desk for industry (including assessment of the commercial implications of policy and market reforms in major producing regions). > Work closely with exporters to develop an integrated suite of industry level marketing activities that complement commercial sales and improve the perceived value and confidence that buyers attach to Australian dairy Knowledge and Insights DA is uniquely placed to serve as a centralised collection point for data sourced on a confidential basis from key manufacturers and government sources. There is a need for provision of timely and credible information to all dairy industry participants as well as stakeholders such as government, banks and service providers, as a basis for decision-making and investment. However, the growth of information in print and online poses a challenge for time-challenged dairy industry stakeholders in searching for relevant data and developing insights that are actionable in their businesses. These programs provide a centralised point for accumulated, relevant knowledge for the industry. Objective: > To collect, analyse and make available information that is useful to stakeholders in their business decision-making. > To provide information and develop insights to improve strategic planning and program delivery for DA. Investment Focus: DA sources data cost-effectively for industry by maintaining a central database of international datasets that can be accessed by stakeholders. The collected knowledge (that is developed from these activities) is then used to facilitate DA and industry-level business planning and prioritisation for the positioning of dairy in national and international debates on dairy s economic, social and environmental contribution. DA also coordinates stakeholder surveys to understand farmer demographics, sentiment, issues and intentions, evaluate issues addressed by programs and incorporate key challenges and issues into strategic planning. The DA Library provides a central repository for research reports, books and journals as well as cost-effective access to online information which can be utilised by all industry stakeholders. The library provides a help desk, dealing with over 6,000 enquiries each year. The knowledge that is developed from these activities is also used to facilitate DA and industry-level business planning and prioritisation for the positioning of dairy in national and international debates on dairy s economic, social and environmental contribution. Dairy Australia Strategic Plan 44

46 5.2 SP2: Protecting and Promoting our Industry Overview Collaborative priorities for Australian industry promotion and protection include contributing to an industry prioritising exercise (endorsed by ADIC) and implementing the Horizon 2020 recommendations and DA will work in collaboration with ADF, ADPF and the wider industry in this regard. Horizon 2020 outcomes have strongly indicated that a sustainable dairy industry is one that builds and maintains its reputation with the community. As such, the focus and activities under SP2 have been revised to better address this objective. Investment in this priority will be $22.8 million (20% of total expenditure) over the 3 years of the plan and is divided into 2 strategic objectives and 4 programs: > Industry promotion ($13.2m): Promoting the benefits of dairy products to community and community influencers, and benchmarking industry sustainability. > Industry protection ($9.6m): Helping industry manage current and future risk areas and helping to improve the reputation of the industry within the community. Recent changes in the reputational landscape are exerting pressures on organisational and industry reputations in Australia and abroad. These pressures include changes in community and consumer expectations about how goods are produced; increasing scrutiny through new technology and social network platforms; the growing influence of NGOs; rising scepticism of company ethics, motives and practices; and, ongoing financial and economic volatility. There is increased public scrutiny on ethical and sustainable production systems which means the Australian and global dairy industries need to develop effective strategies to manage reputational issues. Public concerns and actions are enabled by a voice that is spread rapidly through many new digital and social media channels. The issues impacting the reputation of the industry include: > Challenges to the food safety and security systems. > Responsible use of natural resources. > Size of our environmental footprint. > Animal welfare and ethical production methods. Any measures to enhance the reputation and integrity of the industry must include increasing commitment to national animal health programs and bio-security preparedness. The challenge in doing this effectively is to avoid duplication and excessive compliance burdens. Underpinning this changed landscape is the need for the dairy industry to maintain its social licence to operate - the implicit consent of government and society to allow companies and industries to carry out their commercial activities with a minimum of regulatory interference or opposition from local communities. Stakeholder confidence in the future of the industry is one important driver in ensuring it survives and flourishes. This is a statement backed up by observations from the Horizon 2020 study, which identified that a key strategy in winning ongoing respect and confidence from consumers, customers and community will be establishing effective, emotional connections on key propositions. In response to the drivers of reputation and industry integrity, DA s strategic response is comprised of 3 key elements, which form a self re-enforcing system of influence that strengthens relationships, enables policy, drives demand and supports dairying operations. These elements establish the foundations upon which to integrate, coordinate and monitor ongoing dairy reputation activity. 1. Relationships: Stakeholder communications which engage external stakeholders and build stronger relationships. 2. Policy Support: Capacity-building activities which support the industry s voice and influence policy development. 3. Demand: Industry promotion which showcases the benefits of industry and grows demand. Priority Objective Industry Promotion Strategic Program Industry Promotion Sustainability Reporting SP2 Industry Protection Australian Industry Support Industry Reputation Management Figure 31: SP2 Investment Structure 45 Detailed Initiatives

47 A summary of objectives and targets across the four Strategic Programs is as follows: Strategic Program $ % of $ Strategic Direction 2013/14-15/16 Targets Industry Promotion Industry Promotion $11.8m 10.3% > Development and implementation of an integrated, focused and disciplined program of marketing and communications strategy to realise reputational improvements via Legendairy. > Increase total population everyday 3+ consumption of dairy foods from 28.7% to 32% > Increase the % consumers who agree I trust the dairy industry from 66% to 70% > Reverse the downward trend in farmer confidence about the future of the dairy industry (66% in Feb 2012 to 56% in Aug 2012) Sustainability Reporting $1.4m 1.2% > Position dairy around three key sustainability objectives: Enhancing livelihoods; Improving wellbeing and Reducing environmental impact > Develop targets for the industry agreed Sustainability goals and objectives. > Produce the industry s first Progress report on implementing the Dairy Industry s Sustainability Strategic Framework. > Develop and implement action plans to enable the agrees targets to be met. Industry Protection Australian Industry Support $3.0m 2.7% > Provided industry support in the areas of: - Environmental and natural resource management policies and regulatory affairs. - Policy areas of animal health & welfare, financial management, infrastructure, workforce and education, and health and nutrition > Development and promotion of evidence-based strategic policy positions > Achievement of positive policy outcomes > Minimize the risk of adverse decisions undermining profitability > Improved public and political perception of the industry Industry Reputation Management $6.6m 5.7% > Maintain/ improve: - Community sentiment towards dairy - Key opinion leaders/key stakeholders positive attitude towards dairy - Supporting industry infrastructure and policy resources > More than 90% of industry key contacts who find DA s issues management material important to their role Figure 32: SP2 Summary of Strategic Direction Dairy Australia Strategic Plan 46

48 5.2.2 Industry Promotion Industry Promotion Objectives: This Strategic Program aims to increase community and dairy farmer confidence in the dairy industry and its products. The program is central to the achievement of the Legendairy 2016 objectives, which are to: > Increase total population everyday 3+ consumption of dairy foods from 28.7% to 32%. > Increase the percentage of consumers who agree I trust the dairy industry from 66% to 70%. > Reverse the downward trend in farmer confidence about the future of the dairy industry (66% in Feb 2012 to 56% in Aug 2012). > Develop a positive operating environment for the Australian dairy industry. Investment Focus: Actively telling the story of the Australian dairy industry requires a proactive approach where key audiences receive a consistent message. DA will implement a revised consumer marketing and communications program via new projects leveraging the newly developed Legendairy creative platform. This program will increase DA s capacity to influence industry reputation through a program of marketing and communication initiatives that promote the industry and its products. The program was born out of the desire to build the basis of a strong core story and facilitate its telling in an emotive and compelling way. To deliver the story in the most impactful way, three key audiences were identified: dairy farmers, consumers and the influencers of our society societal shapers. These audiences are not seen as independent, but highly interlinked. Therefore, the dairy story must be told simultaneously to all three. This Strategic Program captures the work targeting farmers, farm communities and consumers. The story will be created from messages derived from the three pillars developed from the Dairy Industry Sustainability Framework. This will ensure a long-term sustainable industry and will bring broad benefit to the community. > Enhancing livelihoods > Improving wellbeing > Reducing environmental impact The program will address the priority target audience, i.e. mums of children aged 5-12 years, and include three initiatives which will deliver a highly visible mass media launch, an ongoing communication campaign and schools engagement activities. This will be supported by marketing and communications to young singles and couples using the fitness and physique platform and to adults 50+ via two initiatives targeting men and women. Improving Wellbeing Enhancing Livelihoods Consumer Reducing Environmental Impact Societal Shapers Farming Communities Figure 33: Target Segments of the Promotional Campaign 47 Detailed Initiatives

49 Sustainability Reporting Objective: Sustainability reporting (often noted as Corporate Social Responsibility or ethical sourcing) is increasingly becoming a requirement for the dairy industry s major customers. While Asian markets are yet to fully embrace this, it is happening in Europe and North America. The large multinationals like Unilever, Nestle, Danone and others all have requirements relating to sustainable/ ethical sourcing. In Australia, the major supermarkets have Sustainability requirements. All aim to have reached specific goals by Investment Focus: This industry framework will provide a solid platform that can be leveraged by individual dairy companies for their own sustainability plans, while attempting to ensure dairy farmers are shielded from direct cost implications at the individual farmer level. Smaller manufacturers can also use the industry strategic framework if they do not have their own. The whole-of-industry approach will also build on work already underway across the supply chain, not just levy funded/da activities. The Sustainability Strategic Framework will enable the dairy industry to meet corporate social responsibility agendas of the industry s major domestic and international stakeholders in a way that does not add unnecessary cost burdens. The desired outcomes of the framework are: > Whole of dairy supply chain is recognised as sustainable. > Consumers and community trust in the Australian dairy industry. > Dairy industry maintains its right to produce - no additional sustainability assurance measures required. > Australian dairy industry is actively sought out by customers as a preferred supplier of sustainable inputs/products. > Governments acknowledge dairy industry as a leader in sustainable production systems and seek to reduce regulatory burdens and engage with the dairy industry when developing policies impacting the industry s sustainability. > User friendly sustainability benchmarking tools are established and add value to the whole of chain sustainability work being undertaken. > DA drives towards consistency with the wider global industry e.g. Sustainable Agriculture Initiatives (SAI) Industry Protection Australian Industry Support Objective: To provide industry support in the areas of: > Environmental and natural resource management policies (water, energy, climate change, soil and biodiversity management, natural disaster relief, etc), and regulatory affairs. > Policy areas of financial management, infrastructure, workforce and education, and health and nutrition. Investment focus: This program supports the dairy industry s development of strategic policy and drives the implementation of the outcomes of policy change. Specific initiatives and activities will support the dairy industry s development of strategic policy positions and achieve outcomes that will improve profitability and improve the industry s reputation as a safe food source and good environmental steward. This includes: > Commissioning expert analysis to review existing and proposed policies, and identify innovative policy solutions; preparing background briefings and other communication materials to support policy positions. > Relationship management initiatives, including attendance and presentations in government and stakeholder consultation forums, conferences, public speaking, and support for industry representatives attending meetings and other engagement opportunities. > Co-investment with other RDCs and research entities in reviewing the effects, costs and benefits of current and proposed policy levers. > Industry reputational promotion activities and events, such as a Legendairy picnic at Parliament House, Canberra; social media engagement; Legendairy marketing initiatives Industry Reputation Objective: > Maintain/improve community sentiment towards dairy. > Maintain/improve key opinion leaders/key stakeholders positive attitude towards dairy. > Supporting industry infrastructure and policy resources. > Maintain/build relevance of health and nutrition benefits of dairy to target segments. > Positively influence perceived benefits of dairy amongst key influencers of target segment. Investment Focus: > Development and implementation of an integrated, focused and disciplined program of marketing and communications strategy to realise reputational improvements via Legendairy. > Engage, arm and mobilise the industry s greatest assets (farmers and their communities) with the messages, tools and the confidence to tell the industry story. > Market the dairy story to societal shapers: These are the influencers of our society whether they are government, community or non-governmental organisations. > Market the dairy story to consumers based on quality and health benefit messaging. > Position Legendairy around three key sustainability objectives: Enhancing livelihoods; Improving wellbeing and Reducing environmental impact. Dairy Australia Strategic Plan 48

50 5.3 SP3: Growth and Capability Overview An important role of any central body is fostering the capability of the industry s human resources as people are critical to industry performance. There is little dairy specific education and training support for the industry beyond those programs that are sponsored by DA. Investment in this priority will be $20.6 million (18% of total expenditure) over the 3 years of the plan and is divided into the following strategic elements: > Capability building ($19.9m): Educational programs and Extension activity focused on transfer of technology, skills and capability to the farm. > Workforce Planning & Co-ordination ($0.7m): Research and planning to ensure that the industry has the right mix of people and skills in the future. The image and general regard of the dairy industry is an issue when seeking to attract young or new entrants into the labour market. School students are faced with a huge array of options dairy is just one of the many and it is difficult to articulate a point of difference. Considerations such as clear and attractive career path, type of job, work life balance, remoteness, and wealth creation opportunities are not fully understood by those outside the industry and this acts a barrier to entering the industry. Pressure on farm profitability makes it difficult for farmers to afford additional labour and many farmers are working longer hours as a result. Retention of farm workers remains an issue and comes at a cost to a dairy business. The estimated turnover rate for the dairy industry is 35% (compared with 18.5% for all Australian organisations) and is conservatively estimated to cost the dairy industry $60m per annum. Local labour shortfalls are being supplemented by an increase in overseas workers seeking employment in Australia. Dairy farmers compete with other industries for skilled and semi-skilled labour and this is hindered by the fact that the image of agriculture and the dairy industry is still poor. In response to the workforce issues and trends that present challenges to the growing skills and capability, DA will pursue the following strategic activities in order to continue to develop the dairy industry workforce: > Regional ownership and implementation of workforce planning and action initiatives. > Measurement of impact resulting from training and development activities. > Transition from awareness programs to employment outcomes. > Understanding of effective business transition mechanisms and the supporting skills and knowledge required. The other key element under this strategic priority is extension, with the objective of effectively transferring the outcomes of farm based R&D to people on farm. The challenge of change management and extension for Australian dairy is magnified by the diversity of dairy farm businesses, which are geographically dispersed, non-uniform and increasingly regionalised in character. Priority Objective Capability Development Strategic Program Attracting & Retaining People Extension & Change Management SP3 Workforce Planning & Coordination Workforce Strategy Planning & Action Figure 34: SP3 Investment Structure 49 Detailed Initiatives

51 Almost 20% of DA s project expenditure is directed towards capability focused projects across the following 3 strategic programs: Strategic Program $ % of $ Strategic Direction 2013/14-15/16 Targets Capability Development Attracting & Retaining People $7.4m 6.5% > Transition from awareness programs to employment outcomes > Measurement of impact resulting from training and development activities > Understanding of effective business transition mechanisms and the supporting skills and knowledge required > Coordinated engagement and connection with young dairy farmers that results in a greater level of cross sectoral collaboration and greater utilisation of existing programs including: The People in Dairy resources and NCDEA programs > The People in Dairy program will shift in focus from resource development to supporting regional delivery and engagement activities > Regional careers co-ordinators in place in 6 RDPs > Cows Create Careers delivered in 275 schools > Developing dairy leaders program commenced > 50% of industry leadership participants are in industry roles within 2 years > 3 People in Dairy business retreats delivered annually Extension & Change Management $12.5m 11.0% > Dairy industry assumes greater responsibility for leading, managing and funding extension delivery to dairy farmers into the future > More than 25% farmer participation in DA sponsored activity > 100% of requests for technical input into NRM and climate change policy responded to by DA Workforce Planning & Co-ordination Workforce Strategy, Planning & Action $0.7m 0.6% > Regional ownership and implementation of workforce planning and action initiatives > 2 Workforce Action regional plans developed and implemented Figure 35: SP3 Strategic Direction Summary Dairy Australia Strategic Plan 50

52 5.3.2 Capability Development Attracting and Retaining People Objective: This program provides information, development support, tools and resources that dairy farmers, new entrants, young farmer networks and graduates can access to ensure that the dairy industry is seen as an employer of choice with clear pathways into the industry. The program objectives are to: > Provide clearly visible national dairy careers pathways. > Provide support for the National Centre for Dairy Education Australia (NCDEA) to operate nationally. > Provide support for the RDP s workforce strategies. > Implement targeted development programs that provide opportunities for industry engagement. > Focus dairy learning and development activities on industry outcomes. > Align the interests of Young Dairy Networks. Investment Focus: > NCDEA > Young Dairy Network Australia > Cows Create Careers > Promotion of Dairy Career Pathways > Scholarships Extension and Change Management Objective: Accelerate the on-farm adoption of beneficial R&D outcomes and best-practice systems via greater farmer awareness of, and access to, new technology and skills. Investment Focus: There will be an increased focus and investment in farm change and extension during 2013/14 as the resource required to provide regional coordination, including NRM coordination, extension delivery services, development capability, and Farm Business Management (FBM) capability is built to work towards addressing industry needs and identified Dairy Moving Forward priorities. DA s leadership and investment in farm change and extension and natural resource management is in direct response to industry requirements and the continuing decline in state government funding of public extension delivery, which has seen a reduction in capacity within this sector. Extension initiatives will be delivered by state agencies (e.g. DPIV) where there is sufficient capability, and alternative delivery options including RDPs, the private sector, NCDEA, regional NRM agencies, commercial operators and collective investments. The exact mode of delivery will depend on the outcome required and the area of change being addressed, for example, creating an improved culture, implementing improved practices, resource use efficiency or building institutional or individual capability. The DA regional NRM coordinators and the regional NRM reference groups will be responsible for integrating the delivery of industry and NRM agency resource management programs Workplace Strategy, Planning and Co-ordination Objective: To ensure the dairy industry has the appropriate supply of skilled and capable people necessary to meet the current and future demands of the industry. The strategies and actions to achieve this must be responsive to workforce trends at a broad industry level, but must be able to be implemented at a regional and farm level. Successful long-term sustainability will be achieved through the recognition of clear and attractive career paths that provide long-term security for both individuals and enterprises. Investment Focus: To achieve this objective the focus will be on a centrally enabled strategy and support framework enabling a regionally delivered and implemented program. At the central level, the workforce planning and action strategy will be developed and supported through the Dairy Industry People Development Council (DIPDC). This body has responsibility for ensuring that the immediate and the long-term skills and capability requirements of the industry are well understood, and that appropriate strategies for addressing these needs are developed and implemented. The DIPDC will sponsor and support appropriate initiatives to implement the strategy. The approach adopted will be to ensure the programs supported by the DIPDC are regionally enabled. This means that the main activity of each program is located within each dairy region and is supported and connected with the local RDP. Local data will be utilised to understand the real demand for jobs, skills and capability within the region and subsequent projects and actions will be directly targeted at identified gaps. Successful programs will be actively shared between regions. This collective and collaborative approach will ensure maximum benefit is derived from the initiatives. Connection with existing initiatives such as the People in Dairy, NCDEA and Regional Innovation and Change Coordinators will be strengthened in order to optimise the outcomes from these investments. 51 Detailed Initiatives

53 5.4 DA Supporting Activity DA Operations Communications For farmers to continue to support the levy system, they want their opinions and needs understood, and to see that their investment is being used effectively in this regard. Similarly, our key funding partners must see tangible value and the accomplishment of agreed goals, in order to continue coinvesting in DA programs. Objective: This program aims to build and protect DA s corporate profile and reputation among our key stakeholders, and to improve farmer satisfaction with DA and its management of levy funds. To do this the focus is on: > Raising awareness of the role of DA. > Raising awareness of levy investment priorities and the value and benefits delivered through DA and levy investments (including tools and resources to support their businesses). > Ensure key stakeholders are engaged and feel that they are heard and valued. Approach: Given the number and diversity of our audiences, there is no single activity that can adequately address DA s corporate communication requirements a multidimensional but integrated approach will be adopted. This approach will recognise the information overload experienced by all our audiences, farmers in particular, and the divergences in information requirements across our target audiences. This program utilises a range of communication channels including media, direct engagement, national and regional event sponsorships, on-line and a range of targeted resources. Strategic Direction: In the two years leading up to the 2012 Dairy Levy Poll our efforts were focussed exclusively on dairy farmers and farmer influencers with the aim of increasing the level of awareness of DA s role, the range of levy investments undertaken and the benefits associated with these investments. The scope will now widen to incorporate formal communications with all key stakeholder groups including Department of Agriculture, Fisheries and Forestry (DAFF) and the State Departments of Primary Industries, given their significant contributions to a range of industry investments. The key focus areas towards the end of the 3 year period will be the next Levy Poll. Upcoming issues from a communications view point are: > Continued consolidation of our information outputs to deliver greater message cut-through and information retention. > Achieving message cut-through in a highly congested information environment. > Greater on ground visibility and presence for DA. > Continued improvements on brand attribution. > A strong focus on engagement with stakeholders. > The adoption of digital technologies to deliver training, education and extension Statutory Reporting This program encompasses the statutory obligations of the organisation: > Hosting of the Annual General Meeting. > Production of the Annual Report. > Effective reporting to funding partners, including the Australian Government, as required under the Statutory Funding Agreement (SFA). Dairy Australia Strategic Plan 52

54 53

55 Expenditure Allocations and Returns 6.1 Alternate Views of Expenditure Allocation Planned Returns Project Portfolio Balance Government R&D Priorities Collaborative Expenditure 59 Dairy Australia Strategic Plan 54

56 6.1 Alternate Views of Expenditure Allocation Supply Chain: DA recognises that industry success is dependent upon profitability within each level of the supply chain. Approximately half of expenditure is directed to pre-farmgate investments, with processing and consumer level receiving 16% and 7% respectively. Triple Bottom Line Reporting: The allocation of expenditure over the next three years is divided across the three categories of Triple Bottom Line reporting: economic, environmental and social responsibility. The allocation of 60% of DA s investment under the Economic category is in line with DA s allocation across Strategic Priorities. SP1 accounts for 59% of DA s investment. SP3 contains most of DA s investment over the next three years, in social responsibility. DA Remit: By functional outcome (see section 1.4), more than half of expenditure is devoted to R&D and the extension thereof. Despite the importance of export markets to the industry, DA spends only 4% on trade policy as it acts in a supporting role only, to the large dairy export companies Feed Inputs (12.27%) 2 Herd (9.34%) 3 Land (4.54%) 4 Milk Production (1.5%) 5 Water (0.81%) 6 Business Capability (23.5%) 7 Processing/Manufacturing (10.24%) 8 Consumers (10.38%) 9 Export Markets (4.33%) 10 Domestic Markets (0.13%) 11 Industry Capability (7.08%) 12 Industry Support (13.14%) 13 DA Services (2.74%) 1 Economic (60%) 2 Environmental (15%) 3 Social (25%) 1 Central provision of information (10%) 2 Industry capability (14%) 3 Regulatory policy (7%) 4 Trade policy (4%) 5 Extension (24%) 6 R&D (32%) 7 Precompetitive product support (9%) Figure 36: DA investment across the dairy supply chain Figure 37: Expenditure by Triple Bottom Line Figure 38: DA investment by remit Expenditure Allocations and Returns

57 6.2 Planned Returns Each DA project is evaluated for planned future benefit to industry and the risk associated with achieving that future benefit. This enables DA to create an assessment of the consolidated planned benefit of all current investments. The following table describes: external project expenditure, benefit cost ratio (BCR), average probability of success (POS) and funding leverage across the strategic priorities and programs. For DA the average risk adjusted planned BCR (after taking into account POS at the project level) for the current portfolio is 3.7 at the project investment level. Due to average funding leverage of 1:1.8 (via Government funds and other sources), the average BCR on levy payer investment is estimated to be 5.6. Probability of success at the program level varies from 40% for heavily R&D oriented programs to 100% for service provision programs. The issue of risk appetite and risk management is dealt with in later sections. As would be expected, the greatest planned returns are in the on-farm and post-farm margin improvement projects. SP2 and SP3 projects are more difficult to economically value but are a strategically important part of a balanced investment strategy as described earlier. Strategic Objective Strategic Program 2013/ /16 Expenditure $ % of Total BCR Average POS Funding Leverage SP1 - Increasing farm profitability & competitiveness 67,611, % % 2.1 Farm Margin Improvement Alignment & Integration 11,322, % % 5.5 Animal Performance 14,547, % % 1.2 Feedbase & Animal Nutrition 14,005, % % 1.1 Farm Business Management 1,563, % % 1.3 Resource Management 5,144, % % 1.9 Market Support & Insights International Market Support 5,085, % % 1.1 Knowledge & Insights 4,383, % % 1.1 Manufacturing Margin Improvement Manufacturing Margin Improvement 11,559, % % 2.0 SP2 - Protecting and promoting our industry 22,786, % % 1.1 Industry Promotion Industry Promotion 11,810, % % 1.0 Sustainability Reporting 1,370, % % 1.0 Industry Protection Australian Industry Support 3,047, % % 1.0 Industry Reputation Management 6,559, % % 1.3 SP3 - Grow capability & skills 20,586, % % 1.8 Capability Development Attracting & Retaining People 7,402, % % 2.2 Workforce Planning & Co-ordination Extension & Change Management Workforce Strategy, Planning & Action 12,504, % % , % % 1.0 DA - Supporting Activity 3,122, % % 1.0 DA Operations Communications 2,415, % % 1.0 Statutory Requirements 707, % % 1.0 Total 114,106, % % 1.8 Figure 39: Expenditure and Evaluation Outcomes by Strategic Program Dairy Australia Strategic Plan 56

58 6.3 Project Portfolio Balance Risk - Return Spread With a range of stakeholders and limited funds available, maintaining a balanced investment portfolio is an important new objective for DA. The implementation of our bespoke project/investment management system has provided the wherewithal to view the portfolio against various dimensions (planned returns, risk, funding leverage) and this has resulted in project investment changes. However, DA is only at the beginning of this analysis process and it will take some time before the organisation can truly claim to have an ideal spread and balance of project expenditure. The following chart provides a snapshot of the current portfolio at strategic program level. SP1 is focused on economic returns to the farmer and, hence, the risk-return chart (see Figure 40) is informative of DA s planned performance. The chart shows a good spread of projects with much of the SP1 expenditure in the acceptable high return/ medium risk region (Manufacturing Margin Improvement, Feedbase & Animal Nutrition, and Animal Performance). DA is funding R&D that is inherently risky and it is DA s remit to address important H3 development areas that are beyond the risk profile of individual organisations in the industry. The objective will be to maximise investment in projects with strong potential commercial gains and simultaneously manage project risk with acceptable limits. The predominance of programs in the low risk-low return quadrant reflects the fact that DA funds many programs that are economically difficult to value (e.g. capability building, industry promotional activity) and that not all returns can be measured in dollar values. Projects that characterise our activities in SP2 Promoting and Protecting our Reputation tend to have lower net present values (NPVs), but are strategically important to ensuring the long-term viability of the industry in that they target reputation, integrity and demand High risk/high return 1 Low risk/high return 1 Manufacturing margin improvment 2 Feedbase & animal nutrition 3 Animal performance 4 Alignment & integration Present value of planned benefit ($m) Knowledge & insights 6 Farm business management 7 Industry promotion 8 Industry repuation management 9 Workforce strategy, planning & action 10 Extention and change management 11 Australian industry support 12 Sustainability reporting 13 Attract and retain 14 Statutory requirements/communications SP1 SP High risk/low return Low risk/low return Weighted of average probability of success (%) SP3 DA supporting Figure 40: Risk Return Chart at Strategic Program Level 57 Expenditure Allocations and Returns

59 6.3.2 Time Horizon As the central investment body, one of DA s remits is to invest in projects that are important to the industry but would not fit within the risk appetite of industry participants. Horizon 3 (H3) projects (benefit to be achieved in 5 years or later) would generally be in this category. Figure 41 describes the expenditure in terms of expected outcome time horizon. As can be seen, only 16% of expenditure is in this category. The remainder is split evenly between H1 (outcome in < 2 years) and H2 (outcome in 2 5 years) Risk Profile DA s balanced risk profile reflects the importance of delivering value for farmers with some certainty while also investing in innovation programs that will build the industry s resilience and competitive advantages. Investing in innovation is necessary for a sustainably profitable industry, but will naturally require a higher degree of uncertainty. At a project level, the average probability of success for all DA expenditure is 61%. The risk related distribution of project expenditure is represented in Figures 42 and 43. DA has allocated 41% of its investment to projects that currently are graded as low risk (probability of success %). These are generally public good projects such as the collection and provision of information, capability building, or stakeholder communication. 18% of expenditure is allocated to medium risk projects (50-75% POS) and a third of spend allocated to high risk projects (25-50% POS). These projects tend to be R&D oriented. 8% of expenditure is allocated to very high risk projects which tend to be exploratory activities associated with research. As would be expected, average (risk free) returns (BCR, see Figure 42) increase as risk increases, with the exception of very high risk projects. For these projects (typically exploration), it is usually too early to fully define the future benefits to the industry and this has the impact of pulling down the BCR Industry benefit acheived within 2 years (41%) 2 Industry benefit acheived from 2 to 5 years (43%) 3 Industry benefit acheived after more than 5 years (16%) Figure 41: Expenditure by Time Horizon Risk Probability of Success 3 Year Expenditure % of Expenditure Average Risk Free BCR Very High 0-25% 9,015,239 8% 3.95 High 25-50% 37,454,174 33% 6.50 Med 50-75% 20,910,377 18% 4.52 Low % 46,727,163 41% ,106, % 1 Very high (8%) 2 High (33%) 3 Med (18%) 4 Low (41%) Figure 42: Risk and Return Expenditure Distribution Figure 43: Expenditure by Risk Assessment Dairy Australia Strategic Plan 58

60 6.4 Government R&D Priorities 6.5 Collaborative Expenditure Increasingly, government is calling for additional rigour in monitoring and evaluation of investment in research and development, as well as enhanced collaboration efforts amongst RDCs. This is to ensure effective distribution of research and to maximise the impact of invested funds. In response, this Strategic Plan articulates how DA will address extension, technology transfer and commercialisation of R&D. To give rise to this outcome, DA is also ensuring that pathways to extension and adoption are incorporated into the planning and approval processes. NR1 An environmentally sustainable Australia NR2 Promoting and maintaining good health NR3 Frontier technologies for building & transforming Australian industries NR4 Safeguarding Australia NR5 Other DA collaborates extensively with a range of institutions including universities, R&D organisations, international research agencies, NGOs and cooperative research centres (CRC). Through collaboration DA intends to have access to leading practices and knowledge that DA can leverage in the delivery of our own Strategic Objectives, as well as ensuring that the broader policy and national research and development objectives of government are realised as efficiently as possible. In total, DA invests approximately $19 million in collaborative projects. Approximately $800k of this is invested in initiatives with other RDCs such as the Grains Research & Development Corporation, and the Meat & Livestock Association NR1: An environmentally sustainable Australia (34%) 2 Promoting & sustaining good health (14%) 3 Frontier technologies for building & transforming Australian industries (33%) 4 Safeguarding Australia (14%) 5 Other (5%) 1 Productivity and adding value (46%) 2 Supply chain & markets (23%) 3 Natural resource management (6%) 4 Climate variability & climate change (7%) 5 Biosecurity (2%) 6 Innovation skills (11%) 7 Technology (2%) 8 Other (3%) 1 An environmentally sustainable Australia (47%) 2 Promoting & maintaining good health (3%) 3 Frontier technologies for building and transforming Australian industries (40%) 4 Safeguarding Australia (9%) 5 Other (1%) Figure 44: Expenditure by National Research Priorities Figure 45: Expenditure by Rural Research and Development Priority Figure 46: Collaborative expenditure by National Research Priority 59 Expenditure Allocations and Returns

61 National Research Priorities Investment ($) Institution Priority 1 Priority 2 Priority 3 Priority 4 Priority 5 An environmentally sustainable Australia Promoting & maintaining good health Frontier technologies for building & transforming Australian industries Safeguarding Australia Commonwealth Govt 548,802 55, , ,874 27,444 CRC 315,000-1,620, CSIRO 44,000 15,374-41,953 - Industry 12,500 43,500 4, ,319 54,889 Other International Research Centre 100,369 40,000-52,515 - NGO 486,923-89, ,869 27,444 RDC 459,906-8, , ,778 Research Centre 2,790,000-1, ,000 - State Govt 2,331,433-2,881, ,029 27,444 University/TAFE 1,790, ,709 2,323, ,140 - Other 130, Grand Total 8,879, ,583 7,564,021 1,756, ,000 Figure 47: Collaborative Expenditure by National Research Priority Dairy Australia Strategic Plan 60

62 61

63 DA Operational Strategy 7.1 Budget Planning Organisation Structure and People Governance, Compliance and Risk Management Corporate Communication IT, System and Processes Performance Management and Evaluation 73 Dairy Australia Strategic Plan 62

64 7.1 Budget Planning DA s funding principally comes from farmer levies and government matching funds for eligible RD&E expenditure. Other income sources include industry and external co-contributions to specific projects, interest earnings and royalties. Total annual receipts in the forecast period are in the range $54-56 million. In framing its budgets, DA seeks to balance planned program outlays with expected income so as to maintain a prudent level of reserves. The Board reviews the required minimum level of reserves annually, taking into account the contractual commitments of the organisation and the potential funding required supporting the industry in the event of a catastrophic event. Figure 48 presents DA s income and planned expenditure for this strategic plan. Investment levels will be maintained at $59-62 million per annum over the planned period to maximise available funds while reducing reserves towards the minimum level. Summary 2010/ / / / / /16 Actual Actual Forecast AOP Strat Plan Strat Plan Production - bn litres Farmgate price, cents per litre $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 Opening Reserves 25,447 31,405 35,535 36,776 29,034 23,640 Income Levy 33,103 31,190 33,037 33,728 34,376 35,036 Gov t Matching Payments 18,787 18,636 19,316 19,007 18,929 19,728 Interest/Royalties/Other 2,975 5,053 4,183 1,744 1,254 1,079 Total Income 54,865 54,879 56,537 54,480 54,559 55,843 Expenditure Project 29,126 32,149 36,081 40,540 37,728 36,197 Overheads 19,781 18,600 19,215 21,682 22,224 22,780 Total Expenditure 48,907 50,749 55,295 62,222 59,953 58,977 Closing Reserves 31,405 35,535 36,776 29,034 23,640 20,506 Minimum Reserve Level 13,100 13,600 17,200 18,485 18,947 19,421 Reserve Surplus/Shortfall 18,305 21,935 19,576 10,549 4,693 1,085 Figure 48: Annual Cash Outcomes & Projections 63 DA Operational Strategy

65 7.1.1 Delivery and Overhead Costs Delivery (DA labour costs related to project delivery) and general overhead costs will increase by 5% ($967k) when compared with the 2012/13 budget due to: Delivery: > Increase in Extension staff during 2012/13 with flow through costs into 2013/14. > Addition of 3 Workforce Planning and Action - Regional Coordinators during 2013/14. > Addition of personnel into Biotech and Animal Health programs. Overheads: > Increased employee costs due to new IT Corporate Services Manager, Corporate Planning Manager, staff training and on-cost increases. > Accommodation: Additional office space at Southbank. > Depreciation increase: Replacement of aging IT infrastructure. > More travel costs associated with additional extension staff. > Decrease in on-costs due to payroll tax exemption. > Decrease in Levy Collection costs due to DAFF/LRS cost sharing revision. Delivery + Overhead Costs 2011/12 Actual 2012/13 Budget 2013/14 Budget Variance $ $ $ $ % Employees, on-costs and agency staff 14,248,667 15,096,238 16,164,067 1,067,829 7% Office Accommodation, IT and Depreciation 1,749,608 1,634,956 2,154, ,064 32% Telephone, Media and Comms 1,007,017 1,279,975 1,053,014 (226,961) -18% Travel/Accommodation 561, , , ,132 30% Finance, Insurance and Legal 938, , ,205 (246,375) -28% Stationery etc 380, , ,010 (30,398) -7% Contractors/Consultants 910, , ,272 (268,832) -42% Research & Data - 130, ,000 (10,000) -8% Project Expense 71,668 37,800 27,550 (10,250) -27% Grand Total 19,868,408 20,715,061 21,682, ,208 5% Figure 49: Delivery & Overhead Costs Dairy Australia Strategic Plan 64

66 7.1.2 Planned Reserves Under the 3 Year plan, expenditure is planned to exceed income with the objective of maximising investment for farmer benefit, while maintaining minimum required reserves. Current planned expenditure reduces reserves to close to minimum levels by the end of 2015/16 (see Figure 50). However, the current plan may need to be adjusted to allow for the inclusion of potential new projects. Given the level of future planned reserves, there is (nominally) little room for additional expenditure during the planned period Dynamic Budget / Funding Flexibility Dynamic budget initiatives (i.e. projects under planning that have not been included within the forward estimate) include projects such as the ADHIS upgrade, the Centralised Data System and components of the National Extension Strategy, and amount to approximately $16m over the next 3 years (see Figure 51). Some of these planned but unbudgeted projects may prove to be more attractive than current projects, so there will be a mechanism to displace planned expenditure with excellent emerging projects. In this regard, DA has some flexibility to divert funding during the course of the next 3 years. For 2013/14, only 37% of the planned expenditure by project has currently been contracted (e.g. CRC, ADHIS, RDPs, DIAL) at this time (see Figure 52). As such, there is the ability to manage expenditure during the 2013/14 and later years should there be a need to do so. 65 DA Operational Strategy

67 70,000 Minimum Reserve Level Total Income Total Expenditure Closing Reserves Planned Reserves ($ 000s) 60,000 50,000 40,000 30,000 20,000 10,000 10/11 11/12 12/13 13/14 14/15 15/16 Figure 50: Income, Expenditure and Reserves 2013/ / /16 $ $ $ SP1 6,551,930 3,789,037 3,009,620 SP2 640, ,000 95,000 SP3 800, , ,000 Total 7,991,930 4,454,037 3,354,620 Figure 51: Dynamic Budget: Estimated expenditure for initiatives not included within 3 Year Planned budget Contracted 45 Uncontracted $m /14 14/15 15/16 Figure 52: Contracted project expenditure Dairy Australia Strategic Plan 66

68 7.2 Organisation Structure and People About Dairy Australia s People DA s people have a dedication and passion for the dairy industry. Their expertise and commitment mean that DA can offer a broad range of services across the whole dairy supply chain. The organisation employs around 100 people and approximately 12% of staff has been with the organisation (and its predecessors) for more than ten years. Many of the employees bring to the organisation extensive farm, manufacturing and scientific research experience. A significant number have tertiary qualifications in a range of business and industry-related functions and post-graduate qualifications such as doctorates and MBAs. DA recognises the value of harmonious working conditions ensuring a safe and fair workplace, as well as choice and opportunity for all its employees. The Company s practices support a diverse team, providing a flexible environment that aligns with the business. DA continues to attract and retain an adaptive and highperforming workforce that is able to meet current and future needs Organisation Structure DA has an investment management role, where Program Managers oversee a range of projects governed by investment contracts, typically undertaken by resources external to the organisation. These Program Managers report to one of six Business Group General Managers. Investment projects may consist of full or partial funding responsibility for external organisations, as described in Figure 54. Some Business Groups also have external advisory bodies that assist in direction and industry integration. Recent re-organisation of DA has resulted in the following structure which is anticipated to remain stable over the forecast period. The Executive Leadership Team (ELT) of the organisation comprises the CEO and the Business Group Leaders marked * in Figure 54. The responsibility of each of the Business Groups is as follows: Farm Productivity and Delivery coordinates research development and extension that focus on farm productivity and profits to address SP1. (Increasing farm profitability) and SP3. (Grow capability and skills) including projects related to: > Business management > Feed availability and consumption > Herd size and breeding > Resource Management. This group is also responsible for DA funding of RDPs and the Dairy Futures CRC. Trade and Industry Strategy aims to enhance and sustain the Australian dairy industry s profitability. It works with industry stakeholders to facilitate favourable international market environments for Australian dairy exports and provides high level technical support to industry and government on emerging trade and industry issues. The group also coordinates the policy hub which integrates policy work undertaken across all DA business groups to enhance DA s liaison and coordination with ADF/ADPF/ADIC on their strategic policy priorities. The group s investments address the export element of SP1. (Increasing farm profitability and competitiveness) and SP2. (Protecting and promoting our industry). Industry Promotion and Product Innovation aims to increase community and dairy farmer confidence in the dairy industry and its products and invest in processor innovation activities (including responsibility for DIAL) for the benefit of the Australian dairy industry. The group s marketing and communications focus, addresses SP2. (Protecting and promoting our industry) and, is organised around three target markets: 1. Consumer, 2. Influencers, and 3. Partnerships and Farming Communities. Under SP2, the group is also responsible for investment in dairy health and nutrition research and industry communication thereof. This group also addresses the manufacturing element of SP 1 (Increasing farm profitability and competitiveness) through its investment in the processor industry central R&D organisation (DIAL). Industry People and Capability sponsors vocational education and training for farming and manufacturing within the dairy industry. The investment focus of this group is to address SP3 (Grow skills and capability), in particular: > Workforce strategy, Planning and Action and > Attracting and Retaining people to/in the industry. The NCDEA, which delivers vocational education and training for and with the Australian dairy industry, is one of the group s key investments in this area. Sustainability is an independent group with the responsibility of coordinating key stakeholders to develop and implement the dairy industry s sustainability framework. This includes establishing a sustainability report which will assist dairy farming and manufacturing reduce dairy s environmental impact and remain in business for the long term. 67 DA Operational Strategy

69 Business Operations provides the financial, HR and administrative backbone to DA. It is responsible for ensuring that DA s business performance is effective and that the organisation has optimum capability, thereby delivering the best possible service to stakeholders. The group s functions are: > Governance, compliance and risk management > Accounting & Finance > Legal Support > Human Resource Management > Corporate Communications > Strategy & Planning > Information Technology Systems and Processes > Performance Management and Evaluation. Managing Director Business Group General Managers Strategic Program Managers Project Leaders Figure 53: DA Reporting Structure Ian Halliday Managing Director General Managers/ Business Groups Chris Murphy* Farm Productivity and Delivery Charles McElhone* Trade & Industry Strategy Isabel MacNeill* Industry Promotion & Product Innovation Shane Hellwege Industry People & Capability Helen Dornom Sustainability Ross Joblin* Business Operations Partial or full funding of external bodies Regional Development Programs (RDP) Dairy Futures CRC Dairy Innovation Australia Limited (DIAL) National Centre for Dairy Education Australia (NCDEA) Figure 54: DA Organisation Structure and Related Entities * The Executive Leadership Team (ELT) of the organisation comprises the CEO and the Business Group Leaders Dairy Australia Strategic Plan 68

70 7.3 Governance, Compliance and Risk Management Governance Framework As a public company limited by guarantee, DA operates within the legal framework of the Corporations Act 2001, other relevant laws and its Constitution. In addition, as the industry services body under the Dairy Produce Act 1986, DA is party to a Statutory Funding Deed with the Commonwealth of Australia. The Constitution sets out rules dealing with matters such as: the Company s objects or purposes; the criteria for eligibility for membership; members voting entitlements; and the composition of the Board including the election and rotation of Directors. In conjunction with the Corporations Act 2001, the Constitution sets out the Company s reporting responsibilities to members. DA will undertake a review of its Constitution in time for the November 2013 AGM Statutory Funding Deed Since its inception in 2003, DA has operated in accordance with the terms of a Statutory Funding Deed ( Deed ) with the Commonwealth. The Deed was last renewed with effect from 18 April This was varied by agreement in 2009 to align timing for its renewal with the DA Dairy Service Levy Poll in It is currently the subject of renewal discussions with the Commonwealth. The Deed has been extended to the earlier of 30 June 2013 or the signing of a new Deed. Under the Deed, the Commonwealth agrees to pay the Dairy Service Levy funds paid by dairy farmers to DA, together with government matching payments. In addition, the Deed sets out how those payments may be used and DA s reporting and accountability requirements to the Commonwealth Membership Under DA s Constitution, all Australian dairy farmers who paid the Dairy Service Levy or who have levy payments deducted from the proceeds of their milk sales are eligible to become Group A members of DA and to participate in General Meetings of the Company and in the election of Directors. In addition, bodies that represent a significant sector of the Australian dairy industry are eligible to become Group B members of the Company. DA s Constitution provides for formal consultation with Group B members in relation to the development of the Company s strategic and operating plans. 69 DA Operational Strategy

71 7.3.2 Board Board Composition At 30 June 2012, the Board comprised eight non-executive Directors (including the Chair) plus the Managing Director. The Board s size and composition enables it to make timely decisions with input from Directors who have a variety of skills and perspectives. The skills, experience and expertise of each Director in office at the date of this report are set out in more detail in the Directors Report. The Board recognises that the relevant skills and experience requirements for Directors might, at times, lead to a potential conflict of interest for a Director. Directors provide a standing declaration of interests and also provide notice when a new office or interest is acquired. A policy exists for dealing with conflicts of interest. The Constitution provides for three-year terms for non executive Directors. At each AGM the Company s Group A members elect Directors to fill Board vacancies created when Directors retire by rotation. This allows the Board s composition to be reviewed annually to ensure that it continues to have the skills and experience necessary to meet the challenges facing the Company and industry. Candidates for election are nominated by a Dairy Industry Board Selection Committee (assisted by a Pre-Selection Committee which identifies candidates with milk-producer skills) comprising representatives from the two Group B members. In addition, Group A members with the necessary skills and level of Group A member support are able to lodge nominations for Board positions Role of the Board The Board is responsible for guiding and monitoring the Company on behalf of its members, to whom the Board is accountable. The roles and responsibilities of the Board are set out in detail in the Board Charter. These include ensuring that appropriate policies, procedures and systems are in place to manage risk and ensure high standards of accountability, ethical conduct and legal compliance. DA recognises that an effective Board is crucial to achieving Company and industry objectives. Accordingly, DA has structured its Board to ensure that the Board has the skills and experience necessary to enable it to deal with current and emerging dairy industry issues, and is able to effectively and independently review management performance and decisions. Under the Board Charter, the Board conducts an annual review to evaluate its performance and identify areas for improvement, with each third review being facilitated by an expert external consultant. Max Roberts Chairman Geoffrey Akers Non-Executive Director Wendy Craik Non-Executive Director Bruce Donnison Non-Executive Director John McKillop Non-Executive Director Alan Grant Non-Executive Director Kelvin Jackson Non-Executive Director Peter Nankervis Non-Executive Director Ian Halliday Managing Director Ross Joblin Company Secretary Figure 55: Dairy Australia Board Dairy Australia Strategic Plan 70

72 Board Operations The Board meets monthly. Prior to Board meetings, DA s management provides Directors with comprehensive Board papers and reports to facilitate sound decision making. In addition, members of the Company s ELT and other members of management give presentations to the Board as required. The Board delegates to DA s management responsibility for: > Development and implementation of strategy as approved by the Board from time to time > Financial performance > Operational activities. The Company has a formal document in place, Delegated Authorities, setting out financial delegations to management and staff. While these matters have been delegated to management, the Board receives comprehensive reports from management at each Board meeting with respect to their implementation. The Board has two standing Committees that assist it in discharging its responsibilities: 1. Audit and Risk Management Committee: Assists the Board in fulfilling its responsibilities for the accuracy and completeness of DA s accounts and external reporting, and the assessment of the Company s risk management plan. 2. Human Resources Committee: Responsible for: > Providing a review and oversight function for the Board on remuneration policies and information. > Independently reviewing policies and information to facilitate consistency with market practice. > Assisting the Board in ensuring that the Company complies with all regulatory and accounting requirements for disclosure of remuneration. > Independently reviewing human resource management policies and related information to ensure that governance accords with contemporary good practice. Each Committee has a Charter setting out its role and responsibilities. Committee members are appointed at the first Board meeting of each calendar year and are selected on the basis of their skills, experience and the qualities they bring to the Committees. The Chair of each Committee provides a verbal report of Committee meetings at the next Board meeting. All Committee Minutes are tabled at the following Board meeting Governance and Compliance Reporting The SFA between DA and the Australian Government governs the funding relationship between stakeholders. The Business Operations group provides corporate governance oversight within DA. Key elements of the governance framework for the organisation are: > DA maintains a Delegated Authority Policy that requires all major investments to be approved at Board level. Sign-off of Board approved expenditure is delegated no lower than Business Group General Manager level, with higher amounts requiring the Managing Director s signature. > The organisation has a set of standard funding contracts which are managed by in-house Legal Manager and provide appropriate levels of liability protection for the organisation. > The accounting and project management system provides transparency of project performance and expenditure to middle and senior management. > Standard employee agreements that manage confidentiality issues. > Annual auditing of accounts. > Periodic audit of performance (most recent October 2011). Some of the key activities for the current strategic planning period include: > Developing monitoring and evaluation frameworks to better measure organisational performance. > Mapping stakeholder engagement opportunities and for enhanced engagement and consultation with industry bodies. 71 DA Operational Strategy

73 7.3.4 Risk Management DA recognises the importance of effective risk management in order to ensure awareness of the breadth and depth of uncertainties that may affect DA s ability to deliver objectives. Accordingly, risk management activities, are considered as an integral part of DA s management practices. The three areas critical to DA s ability to deliver relate to Funding, Governance and Operations and Performance. Figure 56 presents the objectives and high level mitigation strategy for these three critical areas. Critical area Objective Mitigation strategy Funding Governance and Operations Performance To ensure a degree of certainty regarding the funding source To ensure operational risks such as Fraud, Exposure to Liabilities, Knowledge Management, Occupational Health and Safety, Business Continuity and Human Resources are managed To ensure stakeholder needs are met and value is delivered DA must work with and understand core funding providers priorities and requirements as well as prudently managing its reserves DA must have sound processes and controls in place including OH&S committee, project management system, standard policies and procedures DA manages its performance via stakeholder consultation, and monitoring and evaluation of DA investments including the performance of strategic partnership entities and collaborators Figure 56: Critical area objectives and mitigation strategy Dairy Australia Strategic Plan 72

74 7.4 Corporate Communications 7.5 IT, Systems and Processes 7.6 Performance Management and Evaluation The scope of DA s corporate communications efforts will widen to incorporate formal communications with all key stakeholder groups including DAFF and State Departments of Primary Industries, given their significant contributions to a range of industry investments. The Corporate Communications team supports the work of all business units with emphasis on: > The corporate brand (not the industry brand i.e. promotion initiatives around the dairy category or industry reputation - these are covered in SP2 investments). > Key stakeholder audiences including internal stakeholders. > Both DA s corporate communication needs (dissemination of corporate messages around DA s role, levy investments/associated benefits and progress tracking) and DA s essential farmer knowledge needs (program communications to facilitate on farm practice change). DA operates and continues to develop a web based interface (via the DA website) to allow the industry to access central information. Behind this DA maintains finance and accounting system (including HR and payroll modules), Customer Relationship Management (CRM) and project management systems. The web interface provides a method to integrate access to these systems. Over the preceding two years, DA has implemented a new project management system based upon a best practice process for project selection and control. This has enabled the organisation to better define and manage the breadth of activities undertaken. The system also helps ensure DA activities are conducted with appropriate rigour and transparency to deliver value for money and achieve intended outcomes. DA will continue to refine the processes and tools to support staff utilising the project management system. Understanding and engaging effectively with dairy farmers (and other stakeholders) is core to DA s business success. Recent farmer surveys indicate that this area can be improved by adopting a more customercentric approach. To bring the necessary focus and priority to meeting this challenge, a new role of Program Manager Customer Information Services and Systems has been created to focus strategically on the systems, processes and technologies that will enhance data capture, management and delivery both within DA and within the industry. Performance management and evaluation is a central DA function which informs strategy, investment, implementation and review. It is also fundamental to demonstrating value to the Board, industry and Government. Via its accounting and program management system, DA tracks milestone performance for each project/investment. Key performance indicators (KPIs relating to Strategic Objectives) are maintained for each Strategic Program and are reviewed annually. At a high level, the balance of the investment portfolio can be reviewed via risk-return or expenditure allocation charts available directly from the project management system. In 2011 DA initiated an independent review of the performance of DA which recommended strengthening performance monitoring and reporting with a particular emphasis on: > Fewer performance measures linked to DA s Strategic Plan, Annual Operating Plan (AOP) and planning hierarchy elements. > A suite of user tested and targeted information products which report performance internally and externally. > Repeatable, cost effective business systems to generate the required performance information products in a timely, on-going and adaptable manner. DA has now implemented these recommendations and is currently analysing and establishing improvements to the performance management and evaluation function, identifying enhancements to the Project and KPI Management System (PKMS), and identifying benefits of harmonising performance and evaluation with other RDCs. Attachment C contains the KPIs for the current financial for the year ending 30 June DA Operational Strategy

75 References Dairy Australia Strategic Plan 74

76 List of Sources for figures and tables 1. ABARES (2012), Agricultural commodity statistics 2012, Australian Bureau of Statistics and Resource Economics and Sciences, December, Canberra and Dairy NZ (2012), New Zealand Dairy Statistics , Dairy NZ, Hamilton, Retrieved from dairynz.co.nz/publications/nzdairystats/ / 2. ABARES (2013), AGSURF database, Retrieved from 3. Dairy Australia (2012a), Australian Dairy Industry In Focus Dairy Australia (2013a) 5. Ibid 6. ABARES (2013), AGSURF database 7. ABARES (2012), Agricultural commodity statistics 2012 and Dairy Australia (2011), InCalf Fertility Data Project 2011, Retrieved from 8. Dairy Australia (2012a), Australian Dairy Industry In Focus Dairy Australia (2013b), National Dairy Farmer Survey 10. Dairy Australia (2012a), Australian Dairy Industry In Focus Ibid 12. Reserve Bank of Australia (2013) Retrieved from and ABARES (2012), Agricultural commodity statistics IMF (2013), World Economic Outlook April 2013, International Monetary Fund, Washington DC, 2013 Retrieved from org/external/pubs/ft/weo/2013/01/index.htm 14. Dairy Australia (2012a), Australian Dairy Industry In Focus Dairy Australia (2012b), Horizon 2020: Future scenarios for the Australian Dairy Industry, Final Report to the Project Board from the Working Group, December Dairy Australia (2013b) Other references utilised in the plan > Dairy Australia (2012c), Dairy Australia Annual Report 2011/12, Dairy Australia Limited, Melbourne, Industry-overview/About-Dairy-Australia/Publications-2.aspx > Dairy Australia (2013), Dairy 2013 Situation and Outlook, Dairy Australia Limited, Melbourne, > Constitution of Dairy Australia Limited, > Statutory Funding Deed (2007) > Dairy Australia Board Charter > GHD (2011), Dairy Australia Review of Performance to > Australian Government (2012), Rural Research and Development Policy Statement, Department of Agriculture Fisheries and Forestry, Canberra > Commonwealth of Australia (2012), Australia in the Asian Century: White Paper October 2012, Department of the Prime Minister and Cabinet, Canberra > National Health and Medical Research Council (2013), Australian Dietary Guidelines, Canberra: National Health and Medical Research Council, Retrieved from > Commonwealth of Australia (2012), Water Act 2007: Basin Plan, Murray-Darling Basin Authority, November 2012, Retrieved from > 1 May 2012, Letter from the Minister for Agriculture, Fisheries and Forestry to the Chairman of DA > DPIV/Dairy Australia (2012), Dairy Industry Farm Monitor Project, Annual Report 2011/12 > Dairy Australia (2012d), Enhancing livelihoods, improving wellbeing, reducing environmental impact: A strategic framework for keeping the Australian dairy industry in business for the long term, Dairy Australia Limited, Melbourne > DAFF (2013), National Food Plan, Our food future, Department of Agriculture, Fisheries and Forestry 75 References

77 Attachments Dairy Australia Strategic Plan 76

78 Swot Analysis / Strategy Response The following industry SWOT analysis summarises the key high level issues facing the industry and the strategic response from DA within its own (pre-competitive) remit: Industry SWOT Analysis DA Strategy Strengths Weaknesses Strategic Response Strategic Program/s Sovereign > Political and civil stability > Scale of internal market > Policy uncertainty due to possible change of government > Nil: Domain of others Geographic > Proximity to Asia - freight advantage > Geographically diverse dairy regions > Match DA programs to geographic needs > Alignment & Integration (RDPs) > Extension & Change Management Industry Structure > Central support organisations > Government funding support/relative funding stability > Integration of support organizations > Declining State Government funding > Enhance co-operation with other industry organizations > Backfill services funding where possible > Extension & Change Management Regulatory > Food safety/globally respected regulatory environment > Australian Dietary Guidelines (inclusion) > Agriculture exempt from carbon price mechanism > Cost of compliance > Impact of carbon tax through industry inputs not exempt from carbon price mechanism, e.g. energy > Understand, plan and report on sustainability issues impacting the industry > Sustainability Reporting Economic > Relative general economic stability & prosperity > Availability of capital > High dollar damages export competitiveness > Relatively high interest rates > Increasing farm input costs > Declining on-farm profitability > Farm productivity initiatives > Alignment & Integration > Animal Performance > Feedbase & Animal Nutrition > Farm Business Management > Resource Management > Export presence and cost position > Scale versus NZ/ declining cost position > Declining export share > Trade protection, bilateral agreements > Provide support for exporting companies > Improver or defend access to markets > International Market Support > Deregulated domestic market > Relative market power of large retailers impacts pricing > Nil, apart from programs that support supply chain cost minimisation > See above > Stable local demand > Emerging social trends may work against dairy > H&N research programs > Industry Promotion (Legendairy ) > Processor volume production capability (cheese, powders) > Lack of scale & profitability > Processor productivity initiatives > Manufacturing Margin Improvement (DIAL) Natural Resources > Energy cost > Pasture improvement drought resistance > Water availability for some areas limits economically suitable land > MDB uncertainty > Improving efficient use of resources and minimization of emissions > Resources Management 77 Attachment A

79 Human Resources Industry SWOT Analysis DA Strategy Strengths Weaknesses Strategic Response Strategic Program/s > Lineage > Knowledge base > Resilience Technology/ R&D > Central planning National RD&E Dairy Moving Forward > Strong R&D base Pre & post farm > RO capability Product > Genetics: Herd improvement productivity increasing > Product history & reputation Health & nutrition product advantage > Product quality quality control, strong regulatory & compliance > Ability to attract personnel > Management capability > Turnover > Fragmented > Lack of genuine collaboration (CSIRO & Universities) > Technology transfer of R&D to farm > Herd fertility > Importing genetics > Fats, Lactose intolerance > Not differentiated from NZ > Understand industry HR needs > Enhance skills and capabilities > Encourage RO collaboration > Focused investment on extension/technology transfer > Heavy investment in extension and technology transfer > Farm R&D and extension activity > H&N research programs > Industry influencer program > Workforce Strategy, Planning & Action > Attracting and Retaining People > Animal Performance (CRC) > Manufacturing Margin Improvement (DIAL) > Extension & Change Management > Animal Performance > Industry Reputation > Manufacturing Margin Improvement (DIAL) Dairy Australia Strategic Plan 78

80 Trade Conditions Geo-Political Economic Social Industry SWOT Analysis DA Strategy Threats Opportunities Strategic Response Strategic Program/s > Access to markets: Exclusive bilateral trade agreements > Increased trade protection via tariffs and behind border mechanisms > EU removal of quotas, reform of CAP > Asia/Middle East economic or civil issues disrupting trade > EU financial crisis global financial stability/demand > Reduced commodity prices > Continued high Australian dollar > Continued/increasing power of large retailers/use of dairy for competitive advantage leading to lower profitability > Declining farm profitability leading to exit from the industry > Industry consolidation/ Foreign ownership of farms/processors > Decline in farmer confidence leading to exit from industry > Community attitude to dairy: Losing the licence to operate > High staff turnover > Loss of labour and/ or skills to other industries > Emerging non H&N social dietary trends away from dairy > Decline in Infant/youth consumption > Global demand to exceed supply > Access to markets: Exclusive bilateral trade agreements > Export of higher margin product > Asia expansion of middle class leading to demand for dairy products > Production/export of higher margin products > Supply chain efficiency improvements > Increasing demand for private brands > Product range expansion/ differentiation > Regulatory intervention > Farm consolidation leading to economies of scale/improved productivity > Investment to create larger, more efficient farms > Global competitiveness, access to capital, access to markets > Revitalize community confidence in Dairy > Promotion, as above > Education programs to enhance industry skill levels & staff retention > High protein products > Gut health products > Secure more favourable and profitable export market environment for Australian dairy products > Prevention of access erosion of opportunities and conditions in key markets > Foster a close awareness and active buyer preference for Australian dairy products > R&D and extension activity that improve cost position > Mostly competitive issues and not in DA s remit > R&D/extension in areas of animal, pasture and resource productivity > International Market Support > Pre & Post Farm productivity related Programs > Nil > Nil > Nil > Development and implementation of an integrated, focused and disciplined program of marketing and communications strategy to realise reputational improvements via Legendairy > Understand industry workforce needs, support education programs, assist the farmer with HR management > Consumer H&N promotion to enhance demand > New product support programs > H&N based R&D: Managing influencers > All farm strategic programs > Industry promotion: Legendairy > All Skills & Capability programs > Manufacturing Margin Improvement (DIAL) > Industry Reputation > Industry Reputation 79 Attachment A

81 Industry SWOT Analysis DA Strategy Threats Opportunities Strategic Response Strategic Program/s Regulatory > Dietary guidelines loss of dairy s position Environmental/ Natural Resources Product Technical > Climate change reduction in availability of suitable land for dairy > Carbon tax (processor only) > Nitrogen usage/runoff > Regulatory constraints on natural resource use water availability > Natural disasters increased frequency > Bio-security/Animal disease > Dairy slowly losing its position as a dietary staple > Non-dairy substitutes: Soy, margarine > New technology platforms for producers or processors makes current infrastructure non-competitive > Expanded position of Dairy within the guidelines > Benchmarking energy and water usage > Water efficient pastures > Carbon credits sale to Government > More efficient use of fertilizers > Protein intensive products/muscle building > Gut health: Pro/prebiotic products > On-farm and processor automation > H&N R&D that demonstrates value of dairy, management of influencers > Expanded guidelines: Aged care elderly dairy consumption > Resources Management efficiency improvement schemes > Sustainability definition & monitoring > Better preparation for disasters to mitigate negative outcomes > Promotion to maintain/ re-establish dairy as a critical element of diet: Legendairy > New product support programs > Assess new technologies > Provide farmer with knowledge and adoption assistance > Industry Reputation > Resource management > Sustainability Reporting > Australian Industry Support > Business Operations > Animal Welfare programs > Post Farm Margin Improvement > Industry Reputation > Animal Performance: Precision Framing Technologies > Extension Dairy Australia Strategic Plan 80

82 Project Listing SP1 - Increasing farm profitability & competitiveness 3 Year Planned Expenditure Farm Margin Improvement Market Support & Insights Alignment & Integration Animal Performance Feedbase & Animal Nutrition Farm Business Management Resource Management International Market Support Knowledge & Insights P103 P105 Regional Development Programs Pre-Farmgate RD&E Strategic Framework (Dairy Moving Forward) 2013/ / /16 Total 3,634,218 3,634,218 3,634,218 10,902,654 60,000 60,000 60, ,000 P200 Farmer Engagement 80,000 80,000 80, ,000 P106 P107 P108 P109 Managing Milk Quality (Countdown 2020) Improving Reproductive Performance Dairy Futures CRC - Animal Improvement Australian Dairy Herd Improvement Scheme (ADHIS) 575, , ,157 1,712, , , ,604 2,251, , , ,000 2,575,000 1,300,188 1,400,000 1,400,000 4,100,188 P110 Precision Farming Technologies 880, , ,000 2,180,239 P136 National Centralised Data System P213 Animal Health & Welfare - On-farm Change Management P116 National Feedbase Development , , ,500 1,728, , , ,315 1,500,810 P117 Temperate Forage Systems 1,311,616 1,177,138 1,115,000 3,603,754 P119 Sub-Tropical and Mediterranean Forage Systems 500, , ,000 1,012,800 P120 Improved Feeding Systems 1,859,490 1,829,440 1,589,350 5,278,280 P217 Dairy Futures CRC - Forages 870, , ,000 2,610,000 P115 Farm Business Management 810, , ,000 1,563,100 P125 On Farm Emissions Mitigation Strategies 630, , ,000 1,349,665 P128 On Farm Nutrient Management 688, , ,000 2,106,580 P130 Climate Change Adaption Strategies 262, , , ,000 P132 Improving Water Use Efficiency 323, , , ,250 P219 International Market Support - China P229 International Market Support - Japan P230 International Market Support - SE Asia P231 International Market Support - Middle East P232 International Market Support - Other Markets 330, , ,300 1,019, , , , , , , , , , , , , , , ,500 2,009,050 P218 GM Path to Market 130, , ,000 P152 Library 117, , , ,000 P236 Support for Industry Strategy 125, , , ,000 P237 Market Information and Insights 1,219,000 1,219,000 1,219,000 3,657, Attachment B

83 SP1 - Increasing farm profitability & competitiveness Post farm margin improvement Manufacturing Demand & Margin Improvement P185 P211 P180 P182 P184 Dairy Innovation Australia Limited (DIAL) Improving Manufacturing Efficiencies New Product Opportunities with Oral Health Benefits New Product Opportunities with Gut Health Benefits Improving the Management of High Value Product Opportunities 3 Year Planned Expenditure 2013/ / /16 Total 3,150,000 3,100,000 3,100,000 9,350, , , , ,000 25, , , ,000 65, , , , , ,000 Total for Strategic Priority 23,423,756 22,914,949 21,272,594 67,611,299 Dairy Australia Strategic Plan 82

84 SP2 - Protecting and promoting our industry 3 Year Planned Expenditure Strategic Objective Industry Promotion Industry Protection Strategic Program Industry Promotion Sustainability Reporting Australian Industry Support Industry Reputation Management Project Number P220 P221 P222 P223 P224 P225 P153 P127 P210 P233 P234 P235 P226 Project name 2013/ / /16 Total Marketing and Communications to Mums and Kids Marketing to Young Singles and Couples Marketing and Communication to Adults 50+ Food Marketing and Communications Developing Dairy Ambassadors for Farmers and Farming Communities Increasing Knowledge of Legendairy in Farming Communities Dairy Industry Sustainability Framework/Strategy Pre-Farmgate Sustainability Reporting Benchmarking developing methodologies to measure Processing Sustainability Support for Improving Wellbeing (Ensuring health & safety, Maximising nutrition, Caring for our animals) Support for Reducing Environmental Impact (Minimising our environmental footprint) Support for Enhancing Livelihoods (Creating industry prosperity, Supporting communities, Investing in dairy people) Marketing and Communications Partnerships and Engagement 2,960,000 1,850,000 1,570,000 6,380, , , ,000 1,680, , , ,000 1,350, , , ,000 1,500,000 80, ,000 50, , , , , , , , ,000 1,040,000 70,000 70,000 70, ,000 40,000 40,000 40, , , , ,000 1,622, , , , , , , ,000 1,035, , , ,000 1,155,000 P227 Nutrition Research & Science 858, , ,510 1,874,262 P172 Industry Issues Management 90,000 90,000 90, ,000 P177 P228 Managing Supply Chain Food Safety and Integrity Issues Industry Reputation Management 795, , ,000 2,195, , , ,000 1,065,000 Total for Strategic Priority 8,391,179 7,354,073 7,041,510 22,786, Attachment B

85 SP3 - Grow capability & skills 3 Year Planned Expenditure Strategic Objective Capability Development Workforce Planning & Co-ordination Strategic Program Attracting & Retaining People Extension & Change Management Workforce Strategy, Planning & Action Project Number Project name 2013/ / /16 Total P207 Attracting & Retaining People 761, , ,915 2,275,745 P154 P204 National Centre for Dairy Education (NCDEA) Education Program Delivery & Support 1,095, , ,000 2,931, , , ,677 2,195,031 P111 Extension - Victoria 2,396,858 2,424,521 2,466,851 7,288,230 P112 Extension - New South Wales 145, , , ,000 P113 Extension - Queensland 190, , , ,000 P114 Extension - Tasmania 135, ,291 53, ,334 P208 National Extension Support 469, , , ,250 P215 Extension - South Australia 55,000 65,000 35, ,000 P216 Extension - Western Australia 95,000 95,000 95, ,000 P122 Improved People Management (People in Dairy) 627, , ,000 1,627,512 P126 Regional Coordination of NRM 320, , , ,000 P203 Workforce Strategy, Planning & Action 280, , , ,000 Total for Strategic Priority 7,402,505 6,622,404 6,561,443 20,586,352 DA - Supporting Activity DA Operations Communications P141 Internal communications 60,000 60,000 60, ,000 P142 Corporate Media 150, , , ,000 P143 Stakeholder Communications 755, , ,000 1,635,000 P144 Online Services 50,000 50,000 50, ,000 Statutory Requirements P145 Corporate Affairs 220, , , ,000 P238 Review of Dairy Australia s constitution 87, ,500 1,322,500 1,025, ,000 3,122,500 Total Project Expenditure 40,539,940 37,916,426 35,650, ,106,913 Delivery + Overhead Costs 21,682,269 22,224,326 22,779,934 66,686,530 Total Planned Expenditure 62,222,209 60,140,752 58,430, ,793,443 Dairy Australia Strategic Plan 84

86 Strategic Program Key Performance Indicators SP1 Farm Margin Improvement Increasing farm profitability & competitiveness Alignment & Integration Animal Performance Farm Business Management To better understand the needs of all farmers and all regions so that Dairy Australia and RDPs can respond appropriately. To ensure Dairy Australia is responding to the needs of farmers and that farmers are aware of Dairy Australia s activities and investments. To ensure Dairy Australia is responding to the needs of farmers and that farmers are aware of Dairy Australia s activities and investments. To ensure Dairy Australia is responding to the needs of farmers and that farmers are aware of Dairy Australia s activities and investments. To maximise the effectiveness in the delivery of Dairy Australia s pre-farmgate programs. To maximise the effectiveness in the delivery of Dairy Australia s pre-farmgate programs. To protect and improve farm profitability through managing herd reproductive performance. To protect and improve farm profitability through managing milk quality. To protect and improve farm profitability through managing milk quality. Use genetic gain as a major productivity driver for animal performance. To build farm business management capability for dairy farmers, advisers and the research sector. To ensure good quality FBM tools are used effectively and appropriately. Nine regional visits annually engaging with more than 500 farmers and service providers Large supplier satisfaction that they have a say in their levy investment (May ) Farmer awareness of RDP s being levy funded (May % awareness) Farmer awareness of RDPs (May % awareness) Farmer satisfaction with RDP events (May satisfaction 6.0 (useful to farmers in your region)). > 500 contacts >5.5 >85% >95% >6.5 Financial leverage >3:1 Overhead (Program Conduct) as a proportion of total spend Lift 6 week in-calf rate from 50% to 51% through face-to-face training/ extension delivered to farmers and advisers Improve national bulk milk cell count (BMCC) (annual average herd BMCC below 400,000) Improve national bulk milk cell count (BMCC) (annual average herd BMCC below 250,000) Genetic merit of national herd to improve by $10 profit per cow per year The Dairy Farm Monitor Project is expanded to New South Wales and South Australia and farm data is collected for the 2012/13 year. The Australian Dairy Farm Business Database (ADFBD) is established and provides a consolidated set of historical farm data from Victoria, Tasmania and Queensland. <20% 800 farms/ 100 advisers 95% < 400,000 65% < 250,000 by $10 per cow pa >40 datasets >500 datasets 85 Attachment C

87 SP1 Increasing farm profitability & competitiveness Farm Margin Improvement Feedbase & Animal Nutrition Improved extension of feedbase knowledge Increased farmer participation in feedbase extension programs (e.g. Feeding Pastures for Profit). 10% > 2012/13 Improved extension of feedbase knowledge Establishment of pilot regional feedbase demonstration sites in three dairy regions. Sites established Improved nutritional management of transition cows Proportion of Australian farmers that practice transition cow feeding. > 70% Increased industry focus on home grown feed consumption Dairy businesses that have an estimate of annual home grown feed consumption, tonnes of dry matter consumed per 100mm of rainfall or irrigation. > 2012/13 Increased use of improved pasture genetics Strategy for the development of an Australian pasture variety evaluation and selection system (Forage Value Index) for perennial ryegrass. Strategy established Resource Management 60% of Australian dairy farmers demonstrate industry nutrient management good practice by Fert$mart pilots conducted and two nitrogen/feedbase demonstration sites established 100 farmers/ advisors Improved knowledge about the role of soil micro-organisms in facilitating nutrient availability in Australian dairy soils. Research initiative to identify the role of soil micro-organisms in facilitating nutrient availability under low and high fertiliser regimes implemented Achieved Nitrogen loss pathways across a range of Australian soil types and environmental conditions quantified and new strategies to maximise nitrogen use efficiency identified by One new strategy to maximise nitrogen use efficiency identified and quantified. Achieved Quantified, practical and profitable strategies to mitigate increased climate risk and greenhouse gas emissions available for a range of Australian dairy farming systems and environments by Modelling of extreme events for three dairy regions completed Achieved Reduced energy use per litre/milk produced by Australian dairy farmers 900 energy assessments conducted on Australian dairy farms 900 assessments Water productivity Economic and management benefits of faster flow irrigation quantified Fast flow guidelines Dairy Australia Strategic Plan 86

88 SP1 Market Support & Insights Post farm margin improvement Increasing farm profitability & competitiveness International Market Support Knowlegde and Insights Manufacturing Margin Improvement Government support Stakeholder support Company participation in data collections Dairy positions incorporated into all finalised bilateral and regional trade agreements Funding from participants in DA International Market Support programs and initiatives Major exporters support marketing initiatives undertaken TRG/ADF PAG signoff of program objectives/planned outcomes Co-investment from industry allies (i.e.; RFAs. State and Federal Govt. agencies) in International Market Support programs and initiatives Proportion of companies by milk volume Achieved >$70,000 > 50% Achieved >$100,000 90% of intake Stakeholder satisfaction with library services Service rating for overall services At least 8 out of 10 Stakeholder satisfaction with services and publications Accelerate technology adoption Commercial impact of total program work Effective technology transfer Improved funding leverage Opportunity and capability development to improve the uptake of new product opportunities by manufacturers New product commercial uptake Opportunity and capability development to improve the uptake of new product opportunities by manufacturers. Twice yearly stakeholder tracking Proportion of DA s technology transfer projects with DIAL delivering a commercial return Increase in 3 year rolling planned economic value to industry of DIAL s projest portfolio Proportion of new ideas and innovation outcomes presented by DIAL converted into company specific development projects The ratio between DIAL s total membership revenue and the total value of DIAL s research activities Number of key industry communications around high margin new product opportunities Number of initiatives in DA s New Product area in which Australian dairy manufacturers are directly involved Number of key industry communications around high margin new product opportunities At least 7 out of 10 70% >$150 million >50% >1:1 2 or more >3 2 or more 87 Attachment C

89 SP2 Protecting and promoting our industry Industry Promotion Industry Promotion Proportion of Balanced Mums who recall the Legendairy campaign (prompted) > 30% To develop awareness and impact of the Legendairy campaign and its messages Increase the percentage of Balanced Mums who agree I trust the dairy industry >64% To develop awareness and impact of the Legendairy campaign and its messages A decrease in the percentage of Balanced Mums who agree I m concerned dairy foods will increase my weight < 32% To develop awareness and impact of the Legendairy campaign and its messages Increase the percentage of consumers 50+ reporting they felt positively about dairy foods and the industry after talking to their health professional >39% Increase the % of consumers who agree the dairy industry produces high quality products > 76% To shift attitudes of young singles and couples on dairy and weight Maintain the number of physically active 18 to 34 year olds who believe dairy foods help the body recover after exercise 23% Sustainability Reporting Dairy industry stakeholders demonstrate their sustainability credentials against the industry Framework Farming sector support for the Sustainability Framework > 50% farmers Number of companies in the manufacturing sector that support the Sustainability Framework > 90% No additional imposts of sustainability requirements on dairy companies by customers/external stakeholders Major Customers accept the dairy industry s sustainability credentials as evidenced by the industry s Sustainability Report > 70% Industry Protection Australian Industry Support The development and promotion of evidencebased strategic policy positions, to improve profitability and improve the industry s performance and reputation. Achievement of positive policy outcomes. Minimize the risk of adverse decisions undermining profitability and ongoing industry sustainability. Improved public and political perception of the industry as the significant economic power, a good environmental steward and a source of safe and nutritious food. Policy and regulatory decisions favourable to the Australian dairy industry. Industry Reputation Management Increase confidence in Australian dairy foods and the Australian dairy industry % GP s who agree consumption of dairy foods is not associated with weight change in adults > 48% Minimise impact of current industry issues Review of issues management process at completion of issues Achieved No adverse policy positions to Australian dairy developed or implemented Positions of policies developed and implemented 100% Positive media coverage of the Australian dairy industry Ratio of positive to negative dairy media stories Increase Industry Risk Management Maintain a position of influence Proportion of industry key contacts who find DA s issues management material important to their role > 95% Dairy Australia Strategic Plan 88

90 SP3 Capability Development Growing capability & skills Attracting & Retaining People Extension & Change Management Improve Regional Workforce Support Inform and Attract people into the Dairy Industry Inform and Attract people into the dairy industry NCDEA Alliance Partner capability developed NCDEA Alliance partners supported to delivery industry priority programs Programs develop recognised leadership skills within individuals Programs develop recognised leadership skills within individuals Support the delivery of Dairy Australia activities within the NCDEA Evidence based information is used to inform resource management on farm change programs targeting Australian dairy farmers Identify and map extension and education delivery capability to support investment decisions about delivery To add significant value to Dairy Australia s existing and preceding investments in RD&E to enable a more competitive, sustainable and profitable future for dairy farmers To add significant value to Dairy Australia s existing and preceding investments in the People in Dairy program To build extension capability for the farm change and extension sector To embed continuous improvement in the delivery of farm change and extension services through effective evaluation To increase the rate of dairy industry change through greater farmer research and participation To support a regional and national network that integrates industry and natural resource management activities to deliver industry agreed outcomes Dairy Agribusiness Career Pathway Developed Regional Careers coordinators in place with 6 RDP s Cows Create Careers- Farm Module Delivered in all Dairy Regions (schools/ Students) Cows Create Careers - Camembert/ Manufacturing Module delivered in Secondary schools (schools/students) / /3400 NCDEA Alliance Partner Workshop held 1 LeadIn Programs are delivered 3 Leadership Program participants are in industry roles 2 years post training Developing Dairy Leaders Program commenced 50% Achieved Number of activities supported 3 All requests for technical input into NRM and climate change project and policy development at a regional level responded to by Dairy Australia Through collaboration with RDP s develop a full understanding of regional extension and education delivery capability Provide effective resource to deliver better coordination of extension and farm change activities at a regional level Implement delivery strategy to build on regional capability, increase engagement and increase direct farmer benefit from the People in Dairy program Supported by scholarships, attract and appoint three new entrants to the extension sector Implement standard measurement and evaluation framework and apply it to Dairy Australia s investments in extension and farm change Rate of dairy industry change through greater farmer research and participation NRM and government agencies responsible for land and resources management form delivery partnerships with the dairy industry 100% requests 8 regions 6 regions > 10% of farms 3 70% of farm programs >25% 80% partnerships 89 Attachment C

91 SP3 Capability Development Growing capability & skills Workforce Strategy, Planning & Action Dairy Industry People Development Council is operational Strategic Workforce Action activity occurring regionally Sustainable processes that have been adopted across RDPs, Manufacturing and other Service Providers are in place and active within 2 years Workforce development in the dairy services sector is supported Number of meetings held 5 Workforce Action regional plans developed 2 Processes in place Technical Resource Manuals developed for milk machine testers Achieved 2 DA Supporting Activity DA Operations Communications Increase farmer awareness of where levies are invested TBA Increase farmer belief that levies are invested in things that matter TBA Knowledge Management Farmer awareness of DA programs Increase farmer satisfaction with levy spend Increase importance of DA rating Farmer awareness of DA programs Increase importance of DA rating TBC May Farmer awareness of DA programs Greater integration of stakeholder tracking in corporate strategy and program evaluation. Increase farmer awareness of where levies are invested Inclusion of stakeholder tracking data in strategic planning discussions and documents and in more project evaluations. TBA TBA tbc end May 5% increase in usage Increased interest and understanding in stakeholder tracking from staff. Internal stakeholder feedback Use of industry data Increased participation in research round ups Positive feedback, use of analysis and data in development and assessment of programs Board, ELT and managers access and utilise data from industry databases 40% of staff attend Positive feedback from staff 100% awareness, 80% usage Dairy Australia Strategic Plan 90

92 91 Dairy Australia Strategic Plan

93 Published by Dairy Australia Limited. Whilst all reasonable efforts have been taken to ensure the accuracy of the Strategic Plan , use of the information contained herein is at one s own risk. To the fullest extent permitted by Australian law, Dairy Australia disclaims all liability for any losses, costs, damages and the like sustained or incurred as a result of the use of or reliance upon the information contained herein, including, without limitation, liability stemming from reliance upon any part which may contain inadvertent errors, whether typographical or otherwise, or omissions of any kind. Dairy Australia Limited All rights reserved. ISSN (Print) ISSN (PDF)

94 Dairy Australia Strategic Plan Dairy Australia Limited ACN Level 5, IBM Centre 60 City Road Southbank VIC 3006 T F ISSN (Print) ISSN (PDF)