Note: Where available, the PDF/Word icon below is provided to view the complete and fully formatted document
 Download Current HansardDownload Current Hansard    View Or Save XMLView/Save XML

Previous Fragment    Next Fragment
Wednesday, 8 March 2000
Page: 14148

Mr PROSSER (1:27 PM) —I rise to speak about the package of dairy industry adjustment bills. Specifically they are the Dairy Industry Adjustment Bill 2000, Dairy Adjustment Levy (Excise) Bill 2000, Dairy Adjustment Levy (Customs) Bill 2000 and the Dairy Adjustment Levy (General) Bill 2000. When the Australian Dairy Industry Council approached the Commonwealth in April of 1999 with the proposal for an adjustment package for dairy producers in the event of all states and territories agreeing to remove the farm gate pricing arrangements from 1 July 2000, the government responded to the proposal by announcing the structural adjustment package on 28 September 1999. The Commonwealth has no role in making decisions on individual state regulatory arrangements. However, at a meeting of all agricultural ministers on 3 March, all states announced their unanimous decision to deregulate. Given this, the government decided that it was imperative that the dairy farmers be given assistance to meet the new demands that the new market arrangements would bring.

In developing the adjustment package, the government consulted widely with farm organisations and has designed a package that meets the majority of farmers' needs, whether they choose to stay in agriculture or exit the industry. The process of change for the dairy industry is certainly nothing new. Overall, the dairy industry is the fourth largest exporter of Australian agricultural production and accounts for a greater value of production than the wool industry. Dairy farmers have seen their incomes increase markedly in real terms. With this, local business profitability and employment have also increased.

These bills will provide, subject to full deregulation of the individual dairy industries by the states, for a dairy industry adjustment package with a total cost of $1.74 billion. The package objectives, apart from cushioning producers from any immediate financial effects, are, firstly, to assist farmers to cope with any immediate fall in returns which will accompany total deregulation; secondly, to minimise the risk of more farmers than necessary exiting the industry; and, thirdly, to give farmers the choice of remaining in the industry and becoming more efficient or exiting the industry. The package gives dairy farmers some breathing space to re-examine their businesses and determine whether they are economically sustainable in the longer term.

The package allows for two streams of payments, that is, structural and exit payments. The package will ensure that dairy farmers operating on the margin, which will make it impossible for them to compete with deregulated farm gate prices, may leave the industry with dignity. It will also lessen any impact on the shires or regional communities with a major dairy farming industry in their area. In 1998-99, milk intake by processors in Western Australia was 406 million litres, a five per cent increase on last year and a value of some $160 million at the farm gate. Needless to say, it was one of the highest value adding to rural industries in my state. About 40 per cent of the state's milk is sold as market or white milk. The remainder is sold as manufacturing milk for purposes such as flavoured milk, UHT milk, cheese, butter, milk powders, ice-cream, yoghurt and dairy desserts. Some 20 per cent of the state's milk is used for export products.

The WA dairy industry is situated predominantly in my electorate in the south-west of WA. Dairy farming mainly occurs within a 50-kilometre radius of the coast and stretches from Perth to Albany. There are some 440 dairy farmers and 72,000 dairy cows, making the average herd size in Western Australia some 164 cows. The average yield per cow is 5,375 litres. Production has increased significantly in the past two years—about 10 per cent—compared with national growth of about four per cent. Production has continued to increase. An average of 880,000 litres of milk per farm is now the highest in Australia. I outline this because, even though WA comprises only four per cent of the national dairy market, the dairy industry is an important industry in Western Australian communities and it demonstrates what a huge issue this is for dairy farmers in my electorate.

Structural adjustment payments to eligible dairy farmers will commence in 2000-01 based on deliveries of manufacturing and market milk in the year 1998-99. Calculations of entitlements will be at the rate of 46.23c per litre for market milk. Entitlements for producers of manufacturing milk will be on the basis of fat and protein content, with 8.96c per litre being the national average. Payments will be available in quarterly instalments over eight years. This should ensure that any impact on regions is cushioned. To be eligible for a payment, farmers must have had an interest in an eligible dairy farm enterprise on 28 September 1999, the date of the Commonwealth announcement of the availability of this package. All producers, with the exception of those who exit between 28 September 1999 and 30 June 2000, will be required to have certified by an appropriate professional a farm business assessment undertaken by a producer before payments will be allocated.

Dairy farms which have share farming or lease arrangement payments will be shared according to statutory criteria and will be based on the individual share of income from milk deliveries by agreements in place on 28 September 1999 and some capital contributions where they relate to ownership of the farm, quota and/or livestock. I am pleased to note that an amendment to be tabled later today will ensure that dairy farmers in partnership will not miss out on the maximum entitlement. An additional section to clause 13 will be added which will provide that, in the case of partnerships, joint ownership or livestock will count towards determining an individual's essential capital contribution in relation to livestock.

Some farmers in the dairy industry in 1998-99 and today may not meet the criteria for entitlements. There will be an anomalous payment to cover these circumstances. This may include, for instance, farmers who have sold one farm and were in the process of buying another on that particular date. Clearly, they would still have been in the industry. Farm business assessments are intended to ensure that farmers are fully aware of the implications of the changed market circumstances for their business. Farmers can make their own choices on how they utilise the farm business assessment, as the main objective is to raise farmer awareness about the future market change and the impact on their farms. The assessment will maintain confidentiality between the farmer and the relevant professional who will verify that the report has been produced. The DAA will not sight or examine assessments, but may require a random audit to ensure the legislation is being complied with. Another alternative to receiving a structural adjustment payment would be that eligible farmers might choose to exit the industry and obtain the exit payment of up to $45,000 tax free. The exit program will be available for the first two years of the adjustment program. This will ensure that farmers have some time to consider and weigh up the merits of this very important decision. Farmers who initially choose to restructure can switch their choice to exit within a two-year time frame. Any restructure payments received will be netted from their exit payment. The eligibility criteria from the exit payment will be the same as that which applies to the Farm Family Restart scheme. Assessment of applications of the exit program will also be undertaken by Centrelink, which has considerable experience in this area.

The bills provide for the establishment of the Dairy Adjustment Authority, which will be responsible for the Dairy Industry Adjustment Program. The DAA will be supported by a secretariat provided on a cost recovery basis by the Australian Dairy Corporation. The DAA, even though supported by the ADC, will, importantly, maintain its independence from both the ADC and the Commonwealth. The DAA will specifically have control of and the duty to develop a database of entitlements under the dairy structural adjustment package, assess applications under the dairy structural adjustment package, establish and maintain a register of entitlements, resolve disputes concerning entitlements, review arrangements, and account to the Minister for Agriculture, Fisheries and Forestry on the performance of its functions.

The dairy adjustment levy is provided for by the three tax imposition bills I mentioned, that is, the Dairy Adjustment Levy (Excise) Bill 2000, the Dairy Adjustment Levy (Customs) Bill 2000 and the Dairy Adjustment Levy (General) Bill 2000. It has been done in three bills to take into account section 55 of the Constitution, which of course provides that taxation bills should relate to one subject only and that customs and excise bills deal only with those issues. The levy will apply from the first working day after 8 July 2000. The one-week delay is designed to lessen the transitional difficulties associated with the holding of stocks and processing of milk sourced at regulated prices. It is expected that the levy will run for some eight years.

I stated earlier that the establishment and provision of the DAA is on a cost recoverable basis. The package allows for the cost of any borrowing required to pay entitlements and for the administrative costs to be met from levy receipts. The Australian Competition and Consumer Commission will also recover costs of monitoring retail price activity. Any unused amounts will be used to shorten the duration of the levy and the levy will cease once all payments are made and all costs are met. The levy collection process is an efficient way of doing it and one that I believe has the support of the dairy industry. The levy will apply equally to all liquid milk products comprising whole milk, modified milk, UHT milk and flavoured milk. Sales of imported milk will also be covered by the levy as a levy is a tax on use.

It should also be remembered that demand for milk is very inelastic, and even though the 11c levy is not expected to increase the price itself, any corresponding increase in price due to market factors or different costs between regions should have very little or no effect on the demand for milk products generally. The levy is to be imposed on the retail point in the supply chain to ensure that there is no passing back of levy costs. Collection by producers on behalf of the Commonwealth will simplify matters and reduce the burden of compliance. The levy will be remitted to the Commonwealth on the same day that processors remit other various dairy levies, that is, it will be on the 28th day of each month. The bills also provide for small collection agents and levy payers when compliance costs associated with levy collection would be high when compared with the levy raised. These processors will only need to remit on the 28th day of the month after the end of the financial year.

Unfortunately, I have a group of 80 to 85 farmers in my electorate in Capel who fall out of the dairy deregulation package whose difficulties I would like to bring to the attention of the House. The Peters/Brownes and National Food companies have been buying milk indirectly from some 80 to 85 dairy farmers where it is sold to George Weston Foods at their Capel processing plant. The milk had been sold by the Capel farmers in the expectation that it was to be used for manufacturing purposes. They received the manufacturing price for that milk that was delivered. The milk was an excellent quality product and, in fact, some of the milk had been on-sold and used by Peters/Brownes and National Foods to make flavoured milk products.

As members would be aware, milk used for flavoured products is valued more highly than milk used for manufacturing purposes, such as for cheese and butter. I am given to understand that George Weston Foods paid their fair share of the DMS levy on the basis that this milk was to be used for lower value and, therefore, lower DMS-rated manufactured milk products. It seems only fair that the farmers who produce milk that was bought by George Weston Foods and then on-sold to Peters/Brownes and National Foods for flavoured milk use should receive their share of the restructuring package on the end use of that milk. Industry advice indicates that the sum of money involved is between $3.25 million and $3.5 million. That is the equivalent of $40,000 to $45,000 for each of the affected 80 to 85 dairy farmers, and that is a lot of money to the bottom line of any dairy farmer. In hindsight, it was unfortunate that WA consigned flavoured milk to the manufacturing milk market, particularly given that the DMS is the mechanism being used to calculate industry restructuring payments. Currently, the smaller farmers contracted by Peters/Brownes and National Foods will be given a windfall at the expense of the 80 to 85 dairy farmers who are supplying the Capel dairy. It is a quirk of history that has caused this situation and one that cannot be fixed without unravelling this vital package. Since 1987, Western Australia has been making modifications of a deregulatory nature to its supply management arrangements and inevitably down the track—on the balance of probabilities—they would have been fully deregulated.

WA deregulated post-farm gate in 1995, following substantial regulatory changes in the preceding eight years. It would be fairly safe to say that not all WA dairy farmers are in support of deregulation. However, the decision of the Victorian industry has to a large degree taken matters out of the Western Australian government's and industry's hands. As a Senate committee report found—and my experience broadly has been—even though the farmers may not like deregulation, many saw it as inevitable and even more supported the dairy industry package on that understanding. ABARE has estimated that the largest fall in dairy farm incomes will occur in Western Australia and New South Wales where there is a greater production of market milk. Hence, the largest payments per farm under the dairy industry adjustment package will go to the producers in Western Australia and New South Wales. The dairy industry is well used to change and challenges. I know that when the industry has had the time to restructure it will be a more vibrant, innovative and successful industry than it has ever been before.

The United Dairyfarmers of Victoria President, Max Fehring, said recently:

People's livelihoods are at stake here and I am sure that nobody wants to see payment of the package delayed because of politics.

That is essentially what the Labor Party are doing by moving their amendments. It was the Victorian Labor government that pushed the issue of dairy deregulation and ensured that we are here today discussing this particular package. It is shameful that the Labor Party say that they disagree with the deregulation. What is their response? They hinder the very package that will assist the farmers involved in this deregulation. No-one in this government agitated for dairy deregulation. It was a set of circumstances forced on us by the state of Victoria. However, I know that by passing this package, we are doing the responsible thing in assisting farmers to adjust.