 Over the last 30 years, the Australian dairy industry has faced a number of challenges, including changing product markets, variable world prices and prolonged periods of unfavourable seasonal conditions. Faced with these challenges, the industry has remained resilient and undergone significant structural change. Milk production is now more efficient and uses fewer resources per litre of milk produced, which is evident in the productivity performance of the dairy industry. Productivity is a measure of how well producers combine inputs to produce milk. Broadly speaking, it is a ratio of output to inputs. Over the last 35 years, productivity in the Australian dairy industry grew at an average annual rate of 1.6%. This compares favourably with productivity growth in broad acre agriculture, which grew at an average annual rate of 1.1% over the same period. Significant factors in the productivity performance of the dairy industry have been widespread adoption of new technologies such as larger and more automated milking sheds and many smaller, less efficient producers leaving the industry. Additionally, dairy farmers have used extension services and other learning services to gain a better understanding of dairy production systems to lift average milk yields per cow. Going forward, there is scope for further productivity growth through the wider adoption of cutting-edge technology and further industry consolidation. Productivity growth provides a buffer to producers against rising input costs, but it does not guarantee rising incomes. So what has happened to farm cash incomes during this period of restructure? When I say farm cash income, I am not just talking about revenue. Farm cash income is a measure used by A-Bears of the cash funds generated by a farm for investment and personal consumption, after paying all production costs. The costs for production in this measure include interest payments, but exclude capital payments and payments to family labour. The first thing to notice is that average farm cash income has become a lot more variable since deregulation, as producers have become more directly affected by price variations on world markets. However, over the last 20 years, average farm cash income of dairy farms has had an average annual trend rate of growth of 1.2%. Two years ago, average farm cash income was at its highest in real terms for the last 20 years, but is projected to fall this year for the second successive year. This year it is forecast to fall by 28% to 113,000 per farm, which will put it very close to the trend growth path and slightly below the 10-year average to 2014-15. Last year, farm cash incomes fell because of falling farm gate prices in most regions and higher expenditure on feed grains. However, the effect of the falling prices on farm cash income was reduced by a higher production in most states, particularly Tasmania. This year, farm cash income comes are projected to fall because of falling farm gate prices in most southern regions and also lower production in most regions. There has also been higher expenditure on fodder, particularly in areas where there have been unfavourable seasonal conditions. However, while expenditure on fodder is expected to increase, expenditure on other inputs such as fertiliser and fuel are expected to fall. Farm cash incomes are projected to fall on average in Victoria, South Australia, New South Wales and Queensland, but increase marginally in Western Australia. But there will be regional variations in the falls because of regional differences in milk prices. For example, the projected fall in New South Wales is expected to be smaller than for Victoria and South Australia because dairy farms in northern New South Wales have received higher prices than those in the south and are projected to perform better financially. Going forward, Nirvana is not expected to be around the corner, but there are signs that give some confidence there may be some improvements over the next couple of years. First, I would like to discuss our outlook for world dairy prices. Next year, we expect to see a modest recovery in import demand from China and continuing demand growth in Southeast Asia, the Middle East and North Africa. This demand growth is forecast to lift world prices of dairy products over the next couple of years. However, higher production in major exporting countries is expected to lift world supply of dairy products and limit the extent of the forecast price increases. Over the medium term, we're expecting demand growth to continue in Asia, the Middle East and North Africa. In these regions, rising incomes, higher populations and more consumption of Western-style foods are all expected to contribute to the higher demand. Additionally, there is expected to be limited capacity for production to increase in many of these regions, which is expected to increase their import demand. While demand is projected to grow over the outlook period, we think production will also grow. And as a result, prices are projected to fall modestly in real terms over the last couple of years of the outlook period. This will see prices at the end of the outlook period average between 10 and 20 per cent above what we think these will average this year in real terms. Next, I will discuss import demand from China and the Russian Federation in a little bit more detail and a risk factor to these price forecasts. Last year, there was a significant drop-off in Chinese demand for dairy imports following a build-up of Chinese stocks over the previous couple of years. This fall in demand was a significant factor in the fall in world prices that occurred. Chinese stocks are now falling, but import demand from China is expected to remain subdued for the first part of this year. In the second part of this year, import demand from China is forecast to strengthen with low farm gate prices expected to constrain its domestic production and as its stocks continue to fall. Over the medium term, Chinese import demand is projected to grow, but at a slower rate than over the five years to 2014. This is because milk production in China is projected to increase as a result of improved herd genetics and pasture management and productivity enhancing investment in larger dairy farms. A significant fall in import demand from the Russian Federation was also a significant driver in the fall in world prices last year. This was due to a poorly performing Russian economy that resulted in falling incomes and a lower ruble. On top of this, the government of the Russian Federation banned the import of dairy products from some of the world's largest dairy exporters. Import demand from the Russian Federation is not expected to pick up significantly over the next year, largely because the Russian economy is assumed to remain weak. Over the medium term, the Russian Federation is projected to remain a significant importer of cheese and butter with domestic consumption projected to grow faster than its production. The present trade embargo has been extended officially until August this year, beyond which it is uncertain whether or not it will end. We have assumed that it will end in August, but if it does not, such an outcome could put at risk our price forecasts over the outlet period. What does this mean for Australian dairy? I mentioned earlier how the average farm gate price of milk has fallen this year. Next year, the prices forecast to rise by 3%, which is expected to result from high world prices for dairy products. Over the medium term, we think the price will increase moderately in real terms for a couple of years before easing in the latter part of the outlet period, when world supply is projected to increase and world prices are expected to fall in real terms. Nevertheless, milk prices are still projected to average about 6% higher at the end of the outlet period than this year in real terms. Over the next five years, Australian milk production is projected to grow steadily to around 10 billion litres at the end of the outlet period. The projected increase in milk production is expected to come from an increasing average milk yield per cow and a modest increase in cow numbers. There has been a long-term trend in rising milk yields, albeit with some short-term deviations from this trend. This has resulted from improved genetics and technology, better pasture management and increased use of forage crops and feed grains. We are expecting these influences to continue and the average milk yield per cow to increase over the outlet period, albeit less quickly than during the two decades to 2010-11. Measured by a value around 45% of our milk production is exported in the form of dairy products. So what is expected to happen to dairy products is important to Australian dairy. With higher production and growing world demand, the volume of dairy product exports is projected to increase over the outlet period for all the major dairy product groups. The value of exports is forecast to rise over the next couple of years because of higher export volumes and higher world prices. But over the last two years of the outlet period, the value of exports is projected to fall when world prices are expected to fall modestly. Most of our dairy exports are projected to continue going to Asia. With the projected demand growth in this region and trade agreements signed with Asian countries, it is expected Asia will continue to provide opportunities for Australian dairy to prosper into the future. In conclusion, I would like to summarise the main messages in my presentation. First, two years ago, average farm cash income from dairy farms was at the highest had been for the last 20 years. And although it is projected to fall this year, it and dairy farm productivity have been trending up over the last couple of decades as the industry has undergone major restructuring. Second, world dairy prices, the Australian farm gate milk price and the value of dairy exports are expected to increase over the next couple of years and finish the outlet period higher than this year. Additionally, Australian milk production is projected to rise modestly in each year. Third, growing demand in Asia and the recently signed trade agreements are expected to offer opportunities to Australian dairy to prosper in the years ahead. Thank you.