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Wednesday, 8 March 2000
Page: 14192

Mrs DE-ANNE KELLY (5:21 PM) —On 3 March, Australia's agriculture ministers agreed in principle to proceed rapidly to introduce the necessary legislation to deregulate milk marketing arrangements. A statement issued by the ministers after their meeting acknowledged that deregulation was inevitable because of commercial pressures. This inevitability was made even greater so by the Commonwealth government's requirement that all state governments agree to proceed to deregulation before the distribution of the $1.74 billion compensation package could proceed. Included among the ministers who agreed to the deregulation process was Queensland's Minister for Primary Industries and Rural Communities, Mr Henry Palaszczuk, who said that Queensland's agreement would mean that its dairy farmers would receive an estimated $200 million from the total package. Certainly this move by the Queensland government was made with the support of the Queensland Dairy Farmers Organisation chief executive officer, Mr Michael Prendergast, said prior to the decision that access by the Queensland dairy farmers to the compensation package was essential.

A mere 48 hours prior to the Queensland minister putting his hand up on behalf of his government, in favour of deregulation, his own Premier, Mr Beattie, launched a scathing attack on the very process that Minister Palaszczuk warmly embraced. According to an Australian Associated Press report of 1 March, Premier Beattie said that state governments needed to band together to stop the trend of deregulation because of three hikes in the price of milk since late last year. Premier Beattie went on to say that the escalating cost of milk showed deregulation was not benefiting consumers. He said:

We've got to face up to the fact that a lot of the so-called benefits from deregulation have not happened. I think all governments in Australia should be carefully watching the price of milk. We've got to revisit the economic dogma and simply say where is the benefit to consumers. This has got to be done nationally. No state can do this alone.

As I said, this attack from Premier Beattie came a bare 48 hours before Mr Beattie's own minister for primary industries enthusiastically agreed, in the words of the joint ministerial statement, `to proceed rapidly to introduce the necessary legislation to deregulate market milk arrangements'.

I think we can reasonably ask: did Mr Beattie's minister defy his own leader when he voted for rapid deregulation, or did Premier Beattie simply take it upon himself, in the most cheaply cynical way, to grandstand to milk consumers? I tend to the latter view, given Premier Beattie's well-developed inclination to burst into print, saying anything that he feels people want to hear. I have no doubt that Premier Beattie launched his tirade about the alleged evils of deregulation in the full knowledge that his government had already made the decision, announced by his primary industries minister two days later. Once again, Premier Beattie and one of his Labor ministers were trying to do the highwire juggling act, trying to be all things to all people and hoping that nobody would notice the glaring inconsistencies.

Now that the Queensland government has agreed to move rapidly to milk industry deregulation and gain an estimated $220 million from the industry compensation package, it also needs to come clean about what it will do with the considerable extra bonus it will receive from the federal government by way of a National Competition Council approved payment for making the commitment to milk industry deregulation. I am advised that the Chairman of the National Competition Council, Mr Graeme Samuel, has estimated that Queensland will receive $92 million by way of this NCC approval. The principle of what should be done with this windfall payment was established during the life of the Queensland coalition government from 1996 to 1998, when NCC approved payments from the Commonwealth to Queensland for efficiencies in local government were returned to benefit local government.

Now the Queensland Labor Premier, Mr Beattie, who has made such a show of breast-beating and other cynical histrionics over the impact and effects of the deregulation his own government agreed to, can put that money where it will have the most benefit. While such NCC approved payments will be made over the next few years, the Queensland government will receive a total of $120 million in this current financial year so there are funds immediately available to make allocations for infrastructure works and other projects in areas impacted on by dairy industry deregulation. There is no doubt that deregulation has been a contentious issue since it was first raised. Many dairy farmers who had worked for generations, secure in the knowledge that they were providing a high quality product to an accepting market at a fair and reasonable price, are understandably confused and dismayed by the prospect that the brave new world of the deregulated market has no place for them. It was a shattering blow financially and the trigger for a major crisis in their lives.

Mr Beattie's little outburst followed an announcement by Queensland Dairy Farmers—the state's largest supplier of milk—to lift its recommended retail price to $1.43 a litre from 13 March, a lift of 9c a litre. There had been previous price increases of 6c and 8c a litre following partial deregulation last year. As yet, Pauls, the major competitor, has not made any similar announcement. Dairy Farmers' regional manager for Queensland, Mr John O'Hara, has justified this by saying that the price rise reflected the economic realities of the new milk market. That announcement was quickly followed by an announcement by the Australian Competition and Consumer Commission that it would investigate the price rise. There is no doubt that consumers were angered by this rise, but they were very much mistaken if they believed that embattled dairy farmers would benefit in any way from the new price regime. At the same time Dairy Farmers announced a price rise of 9c a litre for consumers, it also announced a price cut of 19c a litre from 1 July for farmers—down to an abysmal 40c a litre.

The chief executive officer of Queensland Dairy Farmers, Mr Michael Prendergast, was quoted as saying that farmers had a right to ask why the processing and retail sector needed an extra 28c a litre. I must say that consumers in Queensland are asking the very same question. When price movements are claimed by the major producer, Dairy Farmers, as a reflection of market realities, is it any wonder that farmers and consumers in Queensland are unconvinced about the claimed benefits of deregulation? In fact, the Chairman of Dairy Farmers, Mr Ian Langdon, was quoted in the Courier-Mail of 3 March as saying that the farm gate price on offer, 40c a litre from 1 July, was the best the company could offer, and he warned that this price could fall even further once the market was fully deregulated.

We have been assured that the removal by state governments of regulation on the price of milk would lead to a price drop of 20c a litre, to be replaced by an across-the-board levy on drinking milk of 11c a litre to fund the $1.74 billion industry compensation scheme. A spokesman for Minister Truss was quoted by AAP on 3 March as saying that milk prices would drop by 8c or 9c a litre after 1 July, following the decision by all state governments to proceed rapidly to deregulation. I certainly hope that this finally is validated. In any case, the Australian Competition and Consumer Commission keeps a very close eye on the processors and retailers who frankly, to date, have been the big winners in this partial deregulation.

Farmers are certainly concerned in my area. Recently I received a letter from the Port Curtis Milk Suppliers Co-operative Association Limited Deputy Chairman, Mr Peter Woodland. That letter, which was dated 28 February, stated:

We have been placed in a position where the best price we will receive after 1 July 2000 is around 43 cents a litre (currently 58.9 cents a litre market milk). Deregulation will mean that the market milk price will drop by approximately 27%.

Of course, what Mr Woodland, and the rest of us, did not know at that time was that only a few days later the farm gate price would be cut to 40c a litre, with the warning that it could go even further. That scenario makes reading Mr Woodland's letter even more difficult. I quote:

The latest cost of production that has been released by the Department of Primary Industries places central Queensland with an average cost of 46 cents a litre. This will mean that many central Queensland dairy farmers will have no choice but to exit the industry and try to establish a new profession on their farms.

This was the scenario Mr Woodland envisaged when he anticipated a post 1 July farm gate price of around 43c a litre. Now, as we know, that in fact is going to be 40c and it could go lower. While the compensation package being arranged by the Commonwealth and funded by a consumers levy for farmers hit by the effects of deregulation is welcome—and Minister Truss should be congratulated for working to achieve a compensation package at all—we must not forget that the government has decided that this restructuring package will be taxed as income, once it has been received by farmers. Therefore, farmers will not receive the full amount. It could mean that farmers could lose up to a third of their distribution, depending on their current income. In his letter, Mr Woodland made a practical suggestion, and I commend it to the government. He wrote:

The Federal Government stands to receive a huge taxation gain out of this industry funded package. Quite a lot of this money is going to be paid out of regions like central Queensland and we see a huge risk that those regions won't receive any money back to put into their local communities that have been affected most by people that have been driven out of the dairy industry. Good examples of these are the areas of Monto and Eungella. At Monto, funds from this windfall in taxation for the Federal Government could be used for roads and infrastructure for water to enable different farming enterprises. At Eungella, funds from this windfall for the Federal Government could be used for roads to attract tourism.

I believe Mr Woodland's point is a valid one. While the restructuring package will be of benefit to impacted dairy farmers, there will be an adverse impact on the communities as the farmers exit the industry and perhaps the area. The ripple effect of this closure of dairy farms in some communities will be very significant.

I referred earlier to the extra $90 million the state government will receive by way of NCC approved payments for agreeing to industry deregulation. Mr Woodland has already identified two areas which need practical help and assistance. I commend his ideas to the Queensland government. Mr Beattie should give a clear and public commitment that the NCC money will be used exclusively for projects in dairy industry areas which will feel the adverse effects of deregulation. Last Friday, when the decision was made by ministers to proceed to rapid deregulation, another decision to establish a high-level task force to monitor and evaluate the impact of deregulation was also taken. I welcome this decision insofar as it will affect regional and rural communities, because I can foresee circumstances arising where added assistance will be necessary to allow communities which lose dairy farmers to adapt and adjust. So far, many dairy farmers and certainly all consumers have seen only negative results from partial deregulation as prices have risen for consumers, though fallen for farmers.

Inside the industry there is intense speculation that the three big processors—National Foods, Dairy Farmers and Parmalat—will be reduced to two, with the most logical combination being a merger of Dairy Farmers and Parmalat. However, in Queensland, Dairy Farmers and Parmalat would control a massive 97 per cent of the industry. I hope that the ACCC would look very closely at such a merger if it were to create a virtual monopoly in Queensland. It would turn the whole process of deregulation into a very disadvantageous one for the farmers remaining. There simply would not be meaningful competition in Queensland at all. In the first half of 1999-2000, National Foods suffered a loss of $5 million in Queensland as it pushed to expand its three per cent market share, and a full year loss of $8 million is predicted. The reality is that millions of dollars are being spent on advertising programs to persuade customers to switch brands at a time when prices are increasing. Hopefully, the obvious will occur to the big milk processing companies that the best way to win and hold customers is to provide a quality product at a reasonable cost, just as it was in the days before deregulation. I believe the jury is still out on what the outcome will be for our rural and regional communities. The Queensland government must play a role in this through its national competition moneys, and I think the federal government should look at some way of directing tax moneys from this into those regions that are going to be hard hit.