Despite operational volatility inherent in agriculture, farmland values – especially in dairy – have demonstrated consistent stability, particularly in high-rainfall regions with secure water access, underpinning steady long-term production.
“Dairy is, in my eyes, first and foremost a defensive asset yet can be lucrative when done correctly,” Prime Dairy’s senior investment analyst, Harrison Stewart, said.
“Farmland values have historically demonstrated minimal volatility, even in the face of commodity price swings – a key differentiator from many other investment classes.”
From an asset allocation perspective, dairy offers institutional investors a unique combination of real asset exposure, capital appreciation and income yield – driven by operating cash flow from milk sales.
“Farmland values almost never move backwards, providing investors with a strong capital base irrelevant of market volatility,” Stewart said.
Stewart emphasised dairy’s inflation-hedging properties and its value as a diversifier.
“Dairy has a low correlation with other investment classes, providing diversification benefits and acting as an effective inflation hedge,” he said.
“Dairy links revenues to food price dynamics and processor demand, while farmland historically demonstrates inflation-sensitive appreciation. An ‘own and operate’ model further enables cost controls and productivity gains that can help defend margins during inflationary periods.”
Returns in dairy are predominantly driven by farmland appreciation, which has averaged 8–10 per cent compound annual growth over the past 20 years, depending on region, with additional yield from milk production.
“In my view, the key driver is capital appreciation, with operating profits representing the ‘cream on top’,” Stewart said.
Prime Dairy typically targets operating distributions between 0–7 per cent, depending on farm productivity and price realisation.
Australian dairy is structurally underpinned by a long-term supply-demand imbalance. Local production is at its lowest since the 1990s, while domestic supermarket consumption of milk, cheese, yoghurt and butter continues to rise.
“Structurally, Australian milk production is currently at its lowest level since the 1990s, while supermarket consumption across all four major dairy product categories continues to rise,” Stewart said.
“At the same time, the value of dairy exports increased 12 per cent year-on-year.”
Recent improvements in weather conditions, milk pricing and the interest rate outlook are expected to support renewed capital growth.
“Given that there has been little to no growth over the past two years, history suggests that this will likely be followed by a period of stronger growth, which, in my view, makes dairy assets particularly compelling today.”
Globally, dairy is the third most consumed food group, with ~80 per cent of the global population consuming it. The International Dairy Federation projects a 30-million tonne shortfall in global dairy production by 2030 if consumption trends continue.
“Per capita dairy consumption has risen steadily and ~80 per cent of the world consumes dairy; the International Dairy Federation flags a potential 30-million-tonne supply shortfall by 2030 if trends persist.”
Australia’s proximity to Asia, absence of farm subsidies and strong local branding provide insulation from import competition and enhance export optionality.
“Unlike many countries, Australia provides no subsidies to dairy farmers, which ensures that our cost base must remain efficient and competitive,” Stewart said.
“This lack of subsidy makes the industry resilient and positioned to capitalise on growing demand, both domestically and internationally, without the risk of imports eroding the market.”
Unlike many agricultural sectors with single annual harvests, dairy enables more consistent revenue.
“Dairy is a bit different from most other agricultural assets – there is potential for greater consistency of income than grain, crops and beef, which often only give you one shot a year at sales,” Stewart told InvestorDaily.
“In dairy, we milk the cows every day with a committed annual milk price, providing more control over performance.
“Part of dairy’s strength as an alternative agricultural investment is creating regular income returns through sales, and this is underpinned by the consumer.”
Despite recent cost-of-living pressures, consumer demand for dairy has proven resilient.
According to Dairy Australia’s 2025 Situation and Outlook, retail sales across all four dairy product categories grew in both value and volume.
“Seeing an uptick in dairy consumption, at a time when many households have been cash-strapped, shows underlying resilience in the dairy market,” Stewart said.
Rabobank’s Global Dairy Quarterly (September 2025) confirmed that a modest decline in milk production has helped lift farmgate prices by approximately 10 per cent year-on-year.
While dairy is not immune to commodity volatility, Prime Dairy said it actively manages exposure through a mix of operational strategies.
“Price volatility is often over-emphasised and focused on as the only driver of profitability in dairy. We think it’s more important to focus on what is in our control – for example, the level of production and cost management,” Stewart said.
“These factors provide more levers to manage financial outcomes and mitigate seasonal volatility.”
