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Wednesday, 8 March 2000
Page: 14118

Mr McARTHUR (10:56 AM) —I acknowledge the thoughtful contribution of the member for Corio, his long history with the dairy industry, his hands-on involvement with the dairy industry as a young man and the fact that his farm was at Alvie in the heartland of Corangamite. I recall his involvement with the Hon. John Kerin when the industry plans that were laid by John Kerin were being formulated in 1984. My support for those plans did not enhance my electoral prospects at that time, as the honourable member would well recall. His contribution here this morning indicates his difficulty in supporting the plans that were developed by the Hon. John Kerin back in 1984, culminating in this legislation here today. On the one hand, he wants an industry plan, like the command economies. On the other hand, John Kerin really wanted the industry to become commercial, export orientated and very much in the modern world.

This is very historic legislation. In the year 2000, the dairy industry now becomes totally deregulated, market orientated and an export industry. In the 1920s, the dairy industry was highly regulated. The background is that milk is a perishable product. It was kept cool in Coolgardie safes in domestic dwellings. It was transported to the local dairy factory by horse and buggy and distributed by horse transport to local people. The dairy factories were close to the small farms. State governments developed a set of regulations that encompassed that set of geographical and technical facts. The milk was perishable. The production was close to the people in the country areas and difficult to distribute to the cities. So a situation developed, which state governments supported, that fresh milk needed to be produced in the late winter and late summer by dairy farmers close to Sydney, Melbourne, Brisbane, Adelaide and Perth, and that was always difficult. Quotas emerged from these sets of agricultural practices, and milk politics in New South Wales and Victoria became a key part of the political process. In the 1950s, the politics of milk quotas and milk regulations played an important part in the politics of New South Wales.

In Victoria, in the 1970s, the Hon. Ian Smith brought about some changes—after a long debate, which the member for Corio alluded to—in trying to reduce the fresh milk contracts, whereby dairy farmers living close to Melbourne had special entitlements because they were able to produce milk over a 12-month period to supply the city milk contract. These city milk contracts were done away with; the premiums remained, but they were moved into the general milk stream. Improvements in refrigeration and transport ensured there was a better distribution of milk from the factories to the people and to the distribution centres. Victoria has led the way in the dairy industry because of its natural advantages of good rainfall and good pasture, and the holdings there have developed into bigger operations to improve production.

As the honourable member for Corio mentioned, in 1984 John Kerin introduced the landmark legislation that removed the pooling export arrangements and encouraged individual cooperative companies to export to their own commercial advantage. That changed the emphasis of the dairy industry in Australia fundamentally from an industry that was inward looking and highly regulated at the state level to one whose individual companies exported, especially to the Asian countries, in their own right at a price they could receive on the world market. We had an interesting situation under the Kerin plan, which was strongly fought over at the time, with domestic milk quotas and milk contracts on the one hand and on the other the Kerin plan, which encouraged milk producers to export to the best possible market at the best price. Those state-run operations under section 92 were always fearful that the Victorians, who even in those days had maintained a reasonably dominant position in the market, would approach their protected milk market with its high price and sell at a better price compared to the overseas price at the time. I put on the public record the foresight and the courage of Minister John Kerin in bringing about this fundamental change against the strongly entrenched positions, which we even saw in 1999, of dairy farmers and dairy farmer organisations that any deregulation is a bad thing. Minister Crean sunsetted the domestic market support scheme arrangements for July 2000, making deregulation inevitable once the Kerin plan came into existence.

It might be worth looking at the philosophy of deregulation— and the whole debate that has surrounded this argument since 1984-85—as it will affect the dairy industry in the future. Victoria has emerged as a dominant producer in both the domestic and export market. It produces 64 per cent of Australia's milk. Victorian dairy farmers have been keen to infiltrate those lucrative city milk contracts in Sydney and Brisbane, and even Perth if they were given half a chance. So the DMS was a short-term measure to contain the ambitions of the Victorians to ensure that they did not cross state boundaries. The national competition policy, the Hilmer provisions, ensured that some of these state regulations were not in the best interests of consumers and of the state generally. The national competition policy review undertaken in Victoria by Graeme Samuel indicated that there was no benefit for Victorians under the current regulations that that state provided for dairy producers.

In this environment, under the very vigorous and far-sighted leadership of Pat Rowley, Chairman of the Australian Dairy Industry Council, a plan was developed to bring about a fundamental change in the dairy industry, with fresh milk, from it being a state regulated system to an export oriented system, which was inevitably going to happen. I put on the public record the outstanding leadership that Pat Rowley provided to this whole change of policy position. Pat Rowley, in my view, is one of the best farm leaders that this parliament has dealt with. He has been very determined to achieve an outcome. He has been active, he has been positive and he has been adaptable to the changing circumstances of both the legislation and the propositions put forward by both the government and the industry.

Certainly, there have been a number of people opposed to this set of regulations—people on this side of parliament—because there has been a culture of regulation that has surrounded this industry since the 1920s. After 80 years of the industry being regulated, of knowing their market and of knowing the price, the proposition that a Queenslander, Pat Rowley, who had a highly regulated market, was foreshadowing—that, after 1 July 2000, the dairy industry would be an open market, would be exporting to the world and taking a world price—was a dramatic change in the historical position of the dairy industry. I also put on the public record the advocacy of Max Fehring, the President of the UDV for over three years, of this quite dramatic change from the point of view of dairy farmers in Victoria and his success in convincing them that an open deregulated market would be in their best long-term interests.

It is interesting to observe that, when these fundamental changes take place in policies such as this, there are always those with entrenched interests that fight against them. The floating of the dollar, which I acknowledge was undertaken by the Hawke government, was a dramatic change to policy in Australia that was in our best long-term interest. Changes to the deregulated labour market, which the Prime Minister, John Howard, was instrumental in and I like to think that I played a role in, were fought tooth and nail, and are continuing to be fought by the trade union movement. The reduction in tariff barriers in the car industry and textile industry was, again, a massive change in policy settings fought against by those with entrenched interests.

We have a situation in this debate where a handful of dairy farmers calling themselves Concerned Dairy Farmers fought against the proposed changes to move into a more open market. They were suggesting a national pooling system, retention of the quota systems in the states and an extension of the DMS. Of course, none of these stand up to logical analysis or World Trade Organisation criteria or ensure that the industry moves into the next century. So the Victorian industry, as I see it personally, is going from strength to strength in the semi-deregulated market it now has. The farms are getting bigger—from 300- to 500-cow units. They have big rotary dairies, they have bigger factories, with Murray Goulburn and Bonlac investing in new technology. They have bigger milk tankers, improved pastures and better management and economies of scale. In my view, the Victorians will lead the dairy industry of Australia, if not the world.

Just for the record, I will give a snapshot of what the dairy industry really consists of. It had export earnings of $2 billion in 1998-99. Interestingly enough, it supplies 12 per cent of the world's dairy trade and is the third largest dairy trader after the European Union and New Zealand. Many industry leaders over the last 80 years have overlooked the interesting fact that we are a big exporter and we have fantastic potential to export more. It is the third largest rural industry in value at the farm gate, behind beef and wheat. It is the largest rural industry, valued at a wholesale level of $7 billion. It has efficient milk production costs by world standards. The animals are not housed during the winter months, which is something we sometimes overlook. Over 50 per cent of total milk production is exported. It is a very important export industry, which this bill will help. The industry produces 10 billion litres of milk, a 55 per cent increase since 1986, when the Kerin plan was introduced. Again, the Kerin plan changed the focus from domestic production to export production. There are about 13,500 dairy farmers, a 30 per cent reduction since 1985, with approximately 98 per cent of dairy farms in family ownership. So we have an industry that is dominated by families who work in regional Australia. The average farm size is now 180 hectares and the average herd size is 149 cows, which has doubled since the 1980s. These probably do not reflect the more efficient farms, which are much bigger than those figures indicate.

We have seen the dairy companies invest $1.5 billion to expand manufacturing capabilities in the five years up to 1998. There has been investment in this industry by the processors which is probably unparalleled in other rural industries around Australia. It is an important regional employer, with 60,000 direct jobs at farm and manufacturing level. That is something that many of us in this parliament overlook. Around 75 per cent of Australia's milk production is processed by dairy owned cooperatives. It is an Australia invention and something that works particularly well. Forty-five per cent of all milk intake and 50 per cent of all milk used for manufacturing is controlled by the two major dairy cooperatives, Bonlac Foods and Murray Goulburn, which are Victorian based operations.

I would also like to acknowledge the cooperative and helpful attitude of Minister Vaile and Minister Truss, as well as those people in the dairy industry who talked to those members of the dairy industry subcommittee of the government in putting forward their views over the last nine months. I put on the public record that the development of this final package has been one of cooperation between government members, the ministers and those people who play a leadership role in the industry. Over that time we had discussions with these industry leaders, and I would like to put on the record some of the points of view that they put forward in incorporating the dramatic change to the industry that we now see in this legislation.

Bonlac were represented by Mr John O'Callaghan and Mr David Harris. They put a point of view to the committee that deregulation would occur inevitably, that it would restructure by 1 July 2000, that there was very strong support by that company, that New Zealand were penetrating the market and would continue to do so unless there was more opening up and deregulating of the market, that the national competition policy supported that view and that deregulation would be World Trade compatible. The New South Wales Dairy Farmers Cooperative, with Mr Langdon as chairman, generally agreed that deregulation would take place, although their fresh milk contracts provided some conflict of interest. Murray Goulburn indicated their support, saying that deregulation was WTO compatible, it was best for their suppliers, they could be more effective in a deregulated environment, they would better utilise the premium of fresh milk in their own operations and market forces would operate better in a deregulated market, even when the commodity prices were moving down.

The New South Wales Dairy Farmers Association, represented by Mr Reg Smith, the president, indicated the inevitability of deregulation once Victoria decided that they would proceed and that you could not protect the New South Wales fresh milk market under section 92 because the Victorians would inevitably move in there if the price was right. He said that the New South Wales farmers had about half their operations in the fresh milk market, which was more lucrative, and that the national competition policy had reviewed the position and saw no case for removing quotas. That is different to the Victorian position. Even in those circumstances, they felt that deregulation was inevitable. They indicated that some of the concerned dairy farmers' proposals for pooling were unworkable. Likewise, 95 per cent of the Tasmanian dairy farmers supported deregulation.

Finally, Pat Rowley, to whom I have referred, and Max Fehring, the Chairman of UDV Victoria, indicated to the backbench committee that deregulation was inevitable and that Victoria would go it alone no matter what happened. Bonlac and Murray Goulburn, the major processors, were advocating deregulation. The DMS scheme was said to give the New Zealanders a market advantage. Eight options had been looked at and had been rejected. The deregulation option was thought to be the only way to go. A compensation restructure package was seen as important. It was noted that 64 per cent of milk produced was from Victoria.

You will see there that industry leaders supported the thrust of the government. There were very extensive consultations and thoughtful dialogue, so we now have the legislation before us, which I would like to run through very quickly. Following these discussions, the minister and the government have put the proposition before the House that deregulation of the industry is inevitable, that the whole approach by the federal government it is to cooperate with state governments in ensuring structural adjustment takes place and that the levy is the best way to organise that. We have a position where the Victorians voted for deregulation. That was part of the change of government. We have the remarkable position in Victoria where 84 per cent of Victorian dairy farmers voted in a plebiscite and 89 per cent voted in favour of deregulation. That puts the lie to those people who were against the proposition of deregulating and in favour of continuing the status quo.

The Senate committee report, which I commend, has indicated that deregulation would inevitably take place. They undertook extensive consultation around Australia and they put up a very worthwhile and thoughtful committee report, which certainly supported the position of the government. The Commonwealth's position, unlike what the shadow minister was trying to suggest, is trying to treat all dairy farmers around Australia equally. That has been somewhat difficult because each state has a different set of arrangements. The proposition before the parliament is an 11c levy on consumers, starting on 8 July 2000, with the DMS terminating. I seek leave to incorporate in Hansard a document which sets out the adjustment program.

Leave granted.

The table read as follows—

Value of the proposed Dairy Industry Adjustment Program

Estimates based on each litre of 1998-99 market milk receiving 46.23 c/l and manufacturing milk receiving 8.96 c/l


Production (million litres)









Market milk

million litres








Manufactured milk

million litres








Total production

million litres








Total payment

$ million








Average payment per farm










Victorian regions





$ million




NSW regions

North Coast



Inland Area


$ million





Qld regions

South East




$ million




Data sourced from the Australian Dairy Corporation, ABARE

Figures may not add to totals due to rounding

Mr McARTHUR —That document clearly identifies the payments to Victoria of about $95,000 per farm and the six billion litres that Victorian production accumulates. In the Australian context, there is a total of 10 billion litres. That identifies the remarkable dominance of Victoria in production terms and the payments per farm under the scheme proposed by the government. The levy will be based on market deliveries at the rate of 46.23c per litre. It will be quarterly instalments over eight years. The bill incorporates adjustments to suit owner-operators, share farmers, lessees, lessors, share payments and share farmer agreements, and I personally have been involved in some of those negotiations to ensure that these payments are made. There will be a cap of $350,000 to ensure that only those who are bona fide dairy producers receive part of this package. There will be an exit program for the first two years of the program and there will be payments tax free of up to $45,000.

The shadow minister has suggested that the levy that was provided by the consumers was unfair and that the Australian taxpayer did not contribute. Could I just say that this is a very big adjustment and it represents only 50 per cent of the consumer levy contributed to the scheme that would have been the situation if the current arrangements had continued after the year 2000 and continued ad infinitum.

I commend this historic package to the parliament. It is a major change to the dairy industry. I commend all those industry leaders who have been involved in it. I commend Ministers Truss and Vaile, who have brought the package to the parliament. I am sure that in this new deregulated open market environment the dairy industry of Corangamite, of Victoria and of Australia will go from strength to strength as a very important part of Australia's agricultural future.