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Wednesday, 8 March 2000
Page: 14180


Mr MURPHY (4:20 PM) —Prior to the interruption of the debate on the dairy industry adjustment bills before question time, I was speaking about the Senate Rural and Regional Affairs and Transport References Committee's report last year into the deregulation of the Australian dairy industry. While the committee noted that a staged approach to deregulation may moderate its immediate effects and allow farmers more time to restructure their businesses, it concluded that a one-off, properly designed, adequately resourced and fully coordinated approach to deregulation is a preferred approach should deregulation occur on 1 July 2000. The government has indicated that the readjustment package will not commence unless all states deregulate their market milk.

Assuming that the bill receives royal assent by 1 April, then the dairy structural adjustment program payments will only begin when all states have repealed those parts of their legislation relating to the current market milk arrangements. Accompanying the structural adjustment packages are three separate levy bills that impose the 11c levy on fluid milk. Collection of the levy will commence on 8 July 2000 regardless of whether there is state agreement to deregulate. It is therefore possible that consumers will be funding the levy before all state governments have abolished their regulatory controls and before dairy producers are able to receive grants from the program. This means that milk prices will rise in the short to medium term. The program is to be totally funded through an 11c levy on all retail milk sales. Minister Truss in his announcement on 28 September 1999 suggested that this levy will not affect milk prices. However, there can be no guarantee that this will occur. It is a similar situation to that of the goods and services tax on certain items; that is, the reduction of a neutral effect on milk prices. But there are no guarantees.

It is understood this levy is unlikely to have any impact, of itself, on retail prices as farm gate prices are expected to fall after deregulation by at least this amount. Similarly, the dairy industry expects that removal of market milk regulations would result in a drop in farm gate prices of 11c to 15c per litre. Therefore a levy of 11c to fund the compensation package should not, of itself, increase the retail price of milk to consumers. However, these are only suppositions put forward in the Senate report and are yet to be tested in the open market. On the other hand, the Senate inquiry was concerned by evidence that suggested that costs associated with deregulation would fall on milk producers and any benefits would not flow through to consumers in the form of cheaper milk. If anything, the prices may rise, let alone remain neutral, let alone fall.

According to the committee report, the funding of the package via a consumer levy appears to be opportunistic. Consumers will probably not get any real benefits from the deregulation of the farm gate price for market milk—at least, not in the short to medium term. The committee is therefore at a loss to understand why consumers should fund the package. It seems the producer's point of view is that they consider that they themselves are funding the package through the fall in the farm gate price. The cost to consumers is claimed to be neutral. The price of milk is not expected to increase, as `it replaces the present price structure established through existing regulation'. However, there is a fundamental flaw in this claim. It assumes that the full extent or almost the full extent of the fall in price to the producer will be passed on to the consumer. The committee considers that this assumption is unduly idealistic; there will be nothing to stop retailers and processors from increasing their margins and the consumer will be paying the price. The demand for drinking milk is highly inelastic. The processors and retailers know this and will take advantage of that fact.

With regard to this point, the member for McMillan, the Honourable Christian Zahra, made a very good point in his speech prior to the interruption of the debate, when he spoke before question time about what might happen in the rural communities in his electorate, namely, Yarragon, Trafalgar, Drouin, Warragul and Neerim South. The member for McMillan alluded to the dairy producers being unlikely to plough their profits into their local communities. They will obviously try and maximise profits to themselves, to the detriment of local consumers. Little wonder rural communities like those of the member for McMillan and the area where I was born and bred in Dunedoo, New South Wales, would start haemorrhaging as a result of this. Little wonder they are deserting the Howard government.

The government's response to these concerns has been to fund the Australian Competition and Consumer Commission, to the amount of $500,000 from the dairy structural adjustment fund so that the ACCC can monitor milk prices during deregulation. What assurances are there in this arrangement that prices will remain neutral, let alone fall? We will have the ACCC acting as a toothless tiger after the new laws have come into operation and the damage has been done. The government's measures to allegedly monitor prices will not influence the fundamentals in this economic realignment of the dairy industry. If the net effect of these dairy industry bills is that prices must rise, then the ACCC will be in the precarious position of being forced to allow prices to rise or face industry meltdown as producers are driven to economic ruin as the ACCC compels them to fix their prices at unrealistic levels.

The two major long-run beneficiaries from deregulation will be domestic consumers and producers of manufacturing milk, particularly that going to the highly competitive export market. The Productivity Commission estimates that in 1997-98 the effective rate of assistance on fresh milk exceeded 200 per cent whilst that on manufactured milk was 18 per cent. This represents a gross distortion of the Australian dairy market and industry and has hindered restructuring within the industry. The current regulatory regime involves a massive cross-subsidy from domestic consumers to producers of manufacturing milk, a transfer estimated to exceed $500 million annually. The bulk of this cross-subsidy will eventually be eliminated under deregulation. This will benefit the domestic consumer through lower prices and also is likely to provide benefits through new milk products which will be more competitive with competing fruit and soft drinks following deregulation.

The major production of manufactured milk occurs in Victoria. It is largely exported and largely controlled by two processing companies. Producers and processors in Victoria are quite certain that they will be major beneficiaries from deregulation and have voted accordingly. The explanatory memorandum argues that the Australian community will benefit from softening the adjustment process. It can be argued that the Australian taxpayer should bear this cost, but in the adjustment bill it is proposed that the domestic consumer of dairy products should pay a levy to fully finance the adjustment program. In effect, the domestic consumer is being asked to wait eight years before enjoying the full benefits of dairy deregulation. Given the protracted period of time the consumer is expected to wait for any tangible gains from dairy industry deregulation, coupled with the government's puerile attempts to convince the public of any protection at the hands of the ACCC after these events, it is entirely reasonable that this House should endorse the shadow minister's second reading amendment, especially clauses 4 and 11, and accept this amendment as part of the bill tabled in the House. (Time expired)