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Tuesday, 10 May 2011
Page: 2170


Senator O'BRIEN (Tasmania) (20:31): Tonight I take the opportunity to speak about the Senate Economics References Committee's recently completed second interim report on its inquiry into the impacts of supermarket price decisions on the dairy industry. Even though I will not be around for the conclusion of that inquiry in the second half of this year, I have been around for a considerable part of the history of the dairy industry's experience of deregulation, including the process of the states agreeing to deregulate their industries back in 1999. It was at that stage a policy was put forward by the leaders of the dairy industry and it was ultimately supported by the government and the opposition, even though there was a Senate inquiry at the time regarding deregulation in the course of which a number of important findings were made. One of the findings was that there was a risk that , in the process of deregulation, the supermarkets might seek to capture more of the value of the dairy industry than they had hitherto, at the expense of the dairy industry. How true that protection turned out to be!

Arising from that process, the gov­ernment, with the support of the opposition and at the request of the industry, implemented a process of levying consumers to supply money which would go to assist in the restructuring of the dairy industry. So, for every litre of milk that consumers purchased, they paid 11c towards that levy which, until it was abolished in 2008, raised $1.8 billion. Consumers paid $1.8 billion towards the rearrangements in the dairy industry, including payments to farmers to leave the industry and payments which allowed farmers to re-equip their dairy operations.

The price that farmers are paid for milk has often been at issue between farmers and dairy processors of varying sorts. It has often been the subject of conflict and consternation for farmers. Of course, the fresh milk industry was the key focus of the deregulation process because that was the part of the dairy industry that was regulated in states such as New South Wales, Queensland and Western Australia . In those states, the production of milk was much more dependent on regulation than it was in states such as Victoria which, of course, produces over 60 percent of the milk produced in Australia.

It is interesting to note that, well after deregulation had occurred, the Weekly Times recorded in an article of 20 February 2009 that the cost of milk to processors had risen in the previous year by 12c to 15c a litre, yet supermarkets were only paying processors another 9c a litre—less, in fact, for their privately branded product, and this has been the subject of great consternation in recent times. So at all times since deregulation there has been a testy relationship between processors and the supermarkets as to the price processors were paid for their milk, yet at some times dairy farmers have done much better than they have been doing in recent years, particularly as, immediately before the global financial crisis, dairy farmers around the country were being paid much higher prices than they were at the beginning of deregulation.

In the period since deregulation we have seen the emergence of two markets for dairy farmers in this country: the markets—the states of Victoria, Tasmania and South Australia—in which the dairy industry relies upon exports for the bulk of their production and the markets—the states of New South Wales, Queensland and Western Australia—in which the dairy industry relies on the production of drinking milk. Over the period since deregulation, a significant difference between those states has emerged in the price paid to dairy farmers for their milk. For example, in the last recorded figures, as set out on page 37 of the committee's recently released draft interim report, the price in Victoria, Tasmania and South Australia was 33.9c, 34.6c and 34.6c per litre respectively; whereas in Western Australia it was 42.4c, in New South Wales it was 48.7c and in Queensland it was 55.8c. In Queensland, the differential had gone up to 65 per cent higher than the price in Victoria, which is one of the states producing milk for export.

In the interim report there were dissenting comments by Senators Xenophon, Heffernan, Milne and Williams in which they suggest that a floor price should be implemented for domestic drinking milk supply as an urgent interim measure. Nothing further has been suggested about a price or how that mechanism would work, but essentially what those senators are urging is a return to regulation for the dairy industry after consumers paid $1.8 billion to move away from it, at the urging of the dairy industry and with the support of the states.

I do not believe that this country ought to or will return to a regulated price for milk. The fact is that the bulk of the milk produced in this country is produced in states which predominantly export. Those states' farmers will be paid prices which have regard to the international price. And that is what is happening now, if you look at the figures that I just mentioned. In these states, particularly New South Wales and Queensland, the cost of production is higher, and dairy farmers will not remain in the dairy industry if they are only paid the international price when it is low. That is why there has been an emergence of a great differential in prices for milk between those states.

To simply say we should somehow have a floor price does not address that differential. How do we set a floor price which addresses that differential? And how do we justify to the farmers, say, in Victoria, that their floor price would, of necessity, be many cents lower than that in Queensland set by regulation, because the businesses relying on their milk in many circumstances could not survive on the higher price being paid north of the Queensland-New South Wales border? So I am concerned at the trend which has emerged in that dissenting report because the trend indicates to me perhaps an appeal to popularity rather than a regard to the historical circumstances of the industry and its future.

The industry has gone through hard times. It has gone through a period where prices were high, but also in drought. It then went through the global financial crisis when prices fell sharply because of a fall in international prices. And now it is going through a period of uncertainty where supermarkets are seeking to capture more of the value using the price of drinking milk as a major marketing tool, with the Coles 'Down, down' and so-called 'Staying down' campaign, where milk is being valued at around $1 a litre—some say, much less than the price of water in a bottle. So, in other words, the water, having gone through the cow, has been devalued.

Can I suggest that it would be appropriate for the committee, when they consider this matter further—and I am sure that they will—to have regard to all of those circumstances. It would be appropriate for the committee to look at the circumstances in which dairy farmers find themselves bargaining with processors about the price of the milk that they sell every day. That is one thing that dairy farmers have to do: they have to sell their milk every day. They cannot store it and sell it when the price is high; they have to sell it fresh every day. They are dependent on what happens in their bargaining with the processors.

It would also be appropriate for the committee to have a close look at the power of the supermarkets. We have a very powerful supermarket sector in this country. They are able to drive prices down in this and a number of other areas. But we do have to have regard to the consequences for primary producers, and manufacturers and processors of product, that ultimately have to sell their food products to consumers—and we do depend on that. But they should not be placed in circumstances where there is excessive power to the supermarkets in the equation, perhaps delivering lower prices to consumers but making some businesses, farm and manufacturing nonviable.