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Wednesday, 8 March 2000
Page: 14152

Mr MURPHY (1:47 PM) —I rise to support the four dairy bills before this House and additionally support the shadow minister for agriculture, fisheries and forestry, the honourable Gavan O'Connor, in his motion for a second reading amendment in the House as tabled. For the benefit of the member for Grayndler, Anthony Albanese, and also the member for Corangamite, Stewart McArthur, I point out that I feel impeccably credentialled to speak to these bills. As a boy who was born and bred in rural New South Wales in a little country town called Dunedoo, I am acutely aware of the impact of these bills on rural communities, and I will deal with some of those issues in my speech.

I would like to start by specifically drawing the attention of the House to clauses 4 and 11 of the honourable shadow minister's second reading amendment. They are worth citing in full:

(4) Imposing a new tax on milk;

(11) Failing to develop an adequate mechanism to ensure that consumers benefit from any fall in the price farmers receive for milk, in the face of price increases that have accompanied the removal of state based regulatory arrangements in the past.

The bills presented before this House reflect on the growing tension between the forces of deregulation on the one hand and basic consumer interests on the other. Deregulation has carried with it general positive connotations based upon a liberal ideology—no pun intended—the paradigm of the free movement of goods, of minimal government intervention, and the doctrine of laissez faire economics. This may have been good practice in the 18th century, but substantial technological developments have resulted in a globalised economy. Deregulation of industry, therefore, has national and international repercussions, as is the case in Australia with these four dairy adjustment bills before us today. It is worth reviewing the contents of these bills briefly before judging them on their likely ultimate impacts.

I turn first to the Dairy Adjustment Levy (Customs) Bill 2000—the customs bill. The customs bill was introduced into this House on 16 February 2000 and is due to commence on 8 July 2000. The customs bill forms part of a package of bills that provide an adjustment program for the deregulation of the Australian dairy industry. The customs bill provides for the imposition of the dairy adjustment levy to the extent that it is a duty of customs. This bill, together with the Dairy Adjustment Levy (General) Bill 2000 and the Dairy Adjustment Levy (Excise) Bill 2000, impose taxation. Three separate bills are required to satisfy section 55 of the Constitution, which in part provides:

Laws imposing taxation, except laws imposing duties of customs or of excise, shall deal with one subject of taxation only; but laws imposing duties of customs shall deal with duties of customs only, and laws imposing duties of excise shall deal with duties of excise only...

Clause 5 of the customs bill imposes formally the levy to be known as the dairy adjustment levy. The levy is only imposed in so far as it is a duty of customs. The rate of the levy is 11c per litre—subclause 6(1). It is to be applied to milk products marketed or for use principally as a beverage for human consumption or an ingredient as a beverage for human consumption or an ingredient for use in making a beverage for human consumption—clause 4. Other milk products, such as powdered milk and milk concentrates, will initially not be subject to a levy. Subclauses 6(2) and 6(3) provide a mechanism for calculating the volume of these products for levy purposes should they become subject to a levy at a later date. The levy can be reduced by regulation—subclause 6(1)(b). Clause 7 of the customs bill provides that the bill does not impose a tax on property of any kind belonging to a state.

The Dairy Adjustment Levy (Excise) Bill 2000 has essentially the same implications and is also required under the provisions of section 55 of the Constitution and thus requires no further elaboration except to say that it, too, will charge 11c excise on milk for consumers. Thus, the customs and excise bills are distinguished from the Dairy Adjustment Levy (General) Bill 2000, which allows the imposition of a dairy adjustment levy to the extent that the levy is neither a duty of excise nor a duty of customs. These three bills are each required to satisfy the provisions of section 55 to which I have referred.

I now turn to the substantive bill, the Dairy Industry Adjustment Bill 2000. The purpose of the bill is to provide an adjustment program for the deregulation of the Australian dairy industry. To facilitate the program, the bill establishes the Dairy Adjustment Authority and the Dairy Structural Adjustment Fund and provides for the collection of the dairy adjustment levy and the payment of grants to eligible dairy producers. The bill gives effect to the government's decision announced on 28 September 1999 to facilitate a dairy industry structural adjustment program subject to all states agreeing to deregulate their market milk schemes. The Minister for Agriculture, Fisheries and Forestry, the Hon. Warren Truss, said that the package would assist restructure of the industry by helping farmers improve their efficiency and competitiveness after deregulation. The dairy industry is currently supported by two major sets of regulatory arrangements, the Domestic Market Support (DMS) Scheme for manufacturing, milk administered by the Commonwealth, and state regulatory arrangements for market milk.

The DMS Scheme is the current manifestation of a long series of federal government schemes providing assistance to manufacturing milk, that is, milk used for butter, cheese, powder and so on. It is funded through two levies, one paid by farmers on all milk sold for fresh consumption and the other paid by dairy product manufacturers on all milk used for dairy products consumed in Australia. These levies are effectively payments from consumers to producers through higher retail prices. Funds from the levies are pooled, and 1998-99 resulted in payments of around 1.6c per litre to dairy farmers supplying manufacturing milk. The scheme results in transfers of industry revenues from the market fresh milk states of New South Wales, Queensland and Western Australia to Victoria, Tasmania and, to a lesser extent, South Australia. In 1998-99 DMS provided net payments of $96 million to the dairy industry of which $85.6 million went to Victoria. With the declining pool of funds from levies and their application to increasing volumes of manufacturing milk, the DMS Scheme now provides only a minimal amount of assistance. It is scheduled for termination on 30 June 2000, as provided for in the legislation which brought it into effect on 1 July 1995. State governments have long regulated the market or fresh milk sector, including pricing, production controls through quotas and pools, distribution arrangements and product quality. A key element has been a pricing structure with a substantial premium to farmers for their market milk.

At the post-farm gate level, all states and territories had deregulated their distribution chain controls on processing, vending and retailing. Decisions by states to remove pricing controls on the distribution chain were generally taken prior to the establishment of the national competition policy and were justified on grounds of efficiency and distribution. Queensland was the last state to remove post-farm gate regulations, which it did on 1 January last year. The current deregulation issue, which arises in part from reviews of dairy marketing arrangements by the states under national competition policy, basically concerns the control of farm gate prices. If controls were removed, the premium for market milk would be eliminated. All states would be affected, but those with a greater dependence on market milk sales for revenue—that is, New South Wales, Queensland and Western Australia—would be affected more than Victoria, Tasmania and South Australia.

The issue of deregulation of the dairy industry has been the subject of debate and inquiry over several years, the most comprehensive inquiry being that of the Senate Rural and Regional Affairs and Transport References Committee undertaken in 1999. That inquiry involved 12 hearings in every state of Australia, attracted 116 written submissions and generated 681 pages of transcript of evidence from 99 witnesses. The report of the Senate inquiry, Deregulation of the Australian dairy industry—'the Senate report'—thoroughly explores all key issues relating to the proposed deregulation of the Australian dairy industry. The principal support for deregulation emanates from Victoria. That state produces almost two-thirds of Australia's milk and the market is dominated by two cooperatives—Murray Goulburn and Bonlac. Between them, these two co-operatives process over 50 per cent of Australia's milk. Murray Goulburn and Bonlac are heavily geared towards the export market, and it is the export market exposure which is the main commercial driver behind deregulation. The Victorian government has announced its intention to go ahead with deregulation on 1 July 2000 based on the outcome of the Victorian dairy industry plebiscite held in December 1999. It is a commonly held view in the industry that, if Victoria deregulates, it will become in-creasingly difficult for the other states to sustain any remaining price and market restrictions due to the competitiveness of Victorian producers, processors and manu-facturers.

The national competition policy reviews of state regulatory arrangements undertaken as a result of the competition principles agreement between the Commonwealth and the states have also added impetus to the deregulation push. All reviews from the various states accepted the inevitability of deregulation. However, except for Victoria, they concluded that the timing of full deregulation should be delayed by at least several years. The Australian Dairy Industry Council, the industry's peak body, is also of the view that deregulation is inevitable and that the primary question is how deregulation should be handled. The ADIC has taken the view that full deregulation should take place from 1 July 2000 to fit in with the sunset of the DMS Scheme, and that the appropriate mechanism for dealing with the dramatic fall in dairy farmers' income at that date is a restructure package. On 23 April 1999 the ADIC submitted an industry proposal to the Minister for Agriculture, Fisheries and Forestry seeking a national restructure package of $1.25 billion to manage simultaneous orderly removal of the DMS arrangements and market milk regulations on 30 June 2000. It is the ADIC proposal, with expanded compensation and levy requirements, that forms the basis of the government's proposed restructure packages as set out in the bill.

I now turn to the arguments put by the government in support of deregulation. According to the Senate report, the major arguments advanced in favour of deregulation are that regulations send the wrong market signals and create inappropriate investment strategies at both farm and manufacturing levels; the industry will not keep ahead of the world market while regulation distorts market signals; and regulation slows down the rate of necessary change. Supporters of deregulation also point to the increasing competitiveness of other world producers who are increasingly able to match the cost of production of Australian dairy farmers.

I turn now to the arguments against deregulation. Four reasons were put to the Senate inquiry by the dairy industry in support of the continuation of market milk regulatory arrangements, specifically: ensuring year-round milk supply at stable prices and equity of access to the stable market; provision to producers with countervailing market power vis-a-vis dairy processors and retailers; provision of support or protection for Australian producers against `corrupt' world markets; and provision of support for the regional economic network.

According to the Senate report, the major concerns in relation to deregulation are falling returns to farmers, the loss of control of the industry and the potential for terms to be dictated by the retail and processing sectors, and the lack of any economic efficiency gains to farmers or benefits to consumers. The committee had particular concerns—concerns which I share—about the detri-mental consequences of deregulation for individual farmers, their businesses and com-munities, including an abrupt loss of income by farmers across Australia as farm gate prices drop, a reduction in the value of cap-ital assets, a loss of the value of quota entitlements in some states, the disap-pearance of countervailing market powers by farmers who will be subject to the force of the major processors and retailers, and the social and regional impact of deregulation. Despite these concerns, it is of note that the Senate inquiry accepted the inevitability of deregulation, stating:

... sooner rather than later the market will force deregulation and that a managed outcome with a soft landing is preferable to a commercially driven crash.

That came from the Senate report Degulation of the Australian dairy industry, Canberra, AGPS 1999, page xiv.

Mr SPEAKER —Order! It being 2 p.m., the debate is interrupted in accordance with standing order 101A. The debate may be resumed at a later hour. If the member for Lowe wishes to continue speaking at that time, leave will be extended to him to do so.