DIRECTORS' REPORT (CONTINUED) SIGNIFICANT EVENTS AFTER THE BALANCE DATE There have been no significant events occurring after balance date which may affect either the Company’s operations or results of those operations or the Company’s state of affairs. LIKELY DEVELOPMENTS AND EXPECTED RESULTS The Company’s total reserves at 30 June 2007 are $23,572,083 (2006: $26,664,315). The decrease in reserves during the year is consistent with the Company’s strategic planning. Traditionally the impact of inflation on Dairy Service Levy income and spending capacity has been offset by growth in national milk production. However, production has been stable or falling for the last five years and this situation is not expected to change significantly over the next five years. Dairy Service Levy payments overall have not kept pace with the negative impact of inflation. Therefore the Company’s planned expenditure is supported by a wind down in reserves to a prudent minimum level of $10 million over the next two years. Reserves will then be maintained at that level indexed by CPI. The reserves are intended to provide a first line of defence against extraordinary and unplanned issues such as animal disease, climatic and other natural disasters and breaches of biosecurity. The current situation and outlook for the Australian dairy industry is finely balanced. World dairy demand remains positive with both local and international markets showing great strength and world prices reaching record levels. But the outlook at the farm level is less certain as farmers face tough decisions about their future due to the effects of the drought, uncertainty about future water access and rising feed costs affecting their confidence. A changed outlook and, at the same time, reduced funding from falling milk production calls for a re-positioning of Dairy Australia’s priorities to respond to changing industry need. The overall aims of Dairy Australia’s Strategic Plan 2008-12 are to best position the industry to recover from the drought and help dairy farmers: build resilience to climate variability and adapt to and mitigate the effects of climate change; increase farm productivity and take advantage of the strong domestic and world prices; and strive for continuous productivity improvements, while providing a sustainable contribution to the Australian community. At the same time, the Company’s priorities are also closely aligned to the Australian Government’s National Research Priorities and the new Rural Research and Development Priorities, which seek to ensure profitable and sustainable growth and profitability of Australia’s rural industries. Further details in relation to these likely developments are contained in the Company’s recently published Strategic Plan 2008-2012 which is available on the website www.dairyaustralia.com.au.
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