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Thursday, 24 May 2001
Page: 26967


Mr TRUSS (Minister for Agriculture, Fisheries and Forestry) (9:41 AM) —I move:

That the bill be now read a second time.

Introduction

The Dairy Produce Legislation Amendment (Supplementary Assistance) Bill 2001 provides for additional assistance to be made available to Australian dairy farmers and the communities most adversely affected by the removal of market milk pricing regulations by all Australian states last June. The bill is a further response by the Commonwealth government to the needs of dairy farmers and their communities and highlights again the inaction of most state governments in helping their farmers cope with change they implemented.

This assistance comes on top of the substantial package of adjustment assistance already provided to the dairy industry by the Commonwealth government. Last year, in the lead-up to the decision by all states to deregulate their fresh milk arrangements, and as a result of a united request by industry leaders across Australia, the federal government put in place a generous dairy adjustment package to the value of $1.78 billion to assist the transition to a deregulated environment.

Implementation of existing package

The $1.78 billion Commonwealth dairy industry adjustment package provides quarterly Dairy Structural Adjustment Program (DSAP) payments for eight years. It also provides a lump sum payment of up to $45,000 tax free to those dairy farmers wishing to leave agriculture and provides $45 million over three years under the Dairy Regional Assistance Program (Dairy RAP) to assist dairy dependent communities affected by deregulation.

The implementation of the Commonwealth dairy adjustment package is well advanced. Virtually all people with an interest in a dairy farm on 28 September 1999 have applied to the Dairy Adjustment Authority (DAA) for payments under the DSAP, 99 per cent have been notified of their entitlements and 95 per cent are now receiving payments. The remaining applicants are essentially only those whose entitlement is under appeal or who are involved in legal action of one kind or another.

Farmers have used their payments for a variety of purposes, including to improve farm productivity and profitability in the new market environment. Some have reduced their farm debt, while others have invested in new farm capacity and other means of improving farm productivity. Some have chosen to leave the industry and are using their payments to re-establish.

Uptake of Dairy RAP has been significant and has focused heavily on assistance for new business or business diversification. For example, the Bega Cheese factory was provided a grant under the Dairy RAP to assist with the purchase and installation of a new cheese shredding line.

Industry adjustment is under way, although the nature of the adjustment burden varies markedly across the country. Restructuring and rationalisation within the Australian dairy processing and manufacturing sector has intensified as firms expand their operations, or seek to merge in the search for increased scale and production efficiencies. The larger dairy companies are looking for partners in the market to improve their competitive positions, both domestically and internationally.

However, despite the successes of the Commonwealth's substantial assistance measures, the government is aware that many producers are still experiencing very difficult circumstances where farm gate price reductions following deregulation have been greater than many farmers expected. In November 2000, the government asked the Australian Bureau of Agricultural and Resource Economics (ABARE) to investigate the impacts of deregulation to get to the facts of the adjustment situation facing dairy farmers and their communities.

The ABARE report, released in January, confirmed that market milk price declines had been greater than the industry anticipated, particularly in the former quota states of New South Wales, Queensland and Western Australia. The report clearly indicated the magnitude of the challenge facing the dairy industry, particularly those operating in the former quota states where the proportion of market milk to manufacturing milk in the total production of the dairy enterprise was significantly greater.

The ABARE report also highlighted that, with the exception of Western Australia, states have done almost nothing to assist dairy farmers to adjust to deregulation, despite it having been state parliaments which took the action of removing farm gate market milk price controls. After having ignored the pleas of the industry for so long, it seems improbable that state governments will ever provide help to farmers affected by their decision to deregulate. The Commonwealth government has decided to provide $140 million by way of additional assistance, closely targeted to those farmers and dairying communities that have been most severely affected by deregulation.

The Dairy Produce Legislation Amendment (Supplementary Assistance) Bill sets out the framework for the new measures. As with the earlier assistance provided by the Commonwealth, this assistance is not about providing compensation or income support. It is to help with adjustment by those farmers who are most in need, thereby easing their transition to a deregulated market and providing wider public benefits to regional communities.

Additional market milk payments

The new assistance will include some $100 million in additional adjustment payments to producers who were heavily reliant on market milk premiums before deregulation and who have consequently experienced significant losses in income. The additional market milk payment is to be made to people who delivered more than 35 per cent of their total deliveries as market milk in 1998-99. The government has accepted that, generally, above this level of market milk dependency before deregulation, farmers are now incurring income losses well above that typical of normal business cycles in dairying, and that some further adjustment assistance is warranted.

Specifically, the additional market milk payment entitlement will be calculated on the basis of a sliding scale from 12c per litre at 45 per cent or more market milk dependency, tapering down to a rate of 0.12c per litre for those whose market milk deliveries were 35.1 per cent of their total deliveries. An individual entity's entitlement will be calculated with reference to their DSAP delivery record in 1998-99. The payment will be subject to a maximum of $60,000 per enterprise, shared according to the allocation of the enterprise DSAP entitlements for market milk.

Farmers will have the option of receiving their entitlement as an additional market milk payment over eight years, or as a lump sum payment. In effect, these payments are of the nature of a subsidy, and therefore will be subject to normal income tax whether the payments are made over an eight-year period or as a lump sum. The DAA will communicate directly with dairy farmers about this additional market milk payment.

Inevitably in an assistance package of the order of magnitude of the Dairy Structural Adjustment Program, there will be a need to require some adjustment to entitlements as new information becomes available to the DAA. The DAA has been able to correct all underpayments, and most overpayments have been addressed on a voluntary basis. The government stands by its commitment not to recover overpayments made by the DAA under the DSAP scheme where those who received a DSAP entitlement acted in good faith. The government is aware that a few people with overpayments have committed funds to investments or borrowings on the basis of their advised DSAP allocation. The government does, however, believe it is appropriate and reasonable for these overpayments to be corrected and recovered where possible from these additional payments. The bill, accordingly, makes provision for this to occur in the handful of cases involved where voluntary repayment has not been agreed. The new package will take effect from the date of the announcement, 21 May 2001.

Discretionary payments

The supplementary dairy assistance proposed in this bill also includes provision for discretionary payments to be made in certain circumstances at an estimated cost of $20 million. The government accepts that a relatively small number of people have been denied payments or have received lower DSAP payment entitlements than they would normally have expected. This may have occurred because of changes in circumstances of farmers, an unfortunate coincidence of timing of the package, or atypical farm management arrangements during the eligibility period.

A discretionary payment right is to be available to address the interests of these people. In principle, to be eligible for a discretionary payment right, an applicant would need to demonstrate to the DAA that they had experienced a significant event, significant crisis or other significant anomalous circumstances which affected their eligibility for, or reduced, their DSAP entitlement. Events that may be considered might include personal circumstances such as illness, injury related incapacity, death or animal disease that significantly disrupted production. Atypical farm management arrangements during the base year that resulted in lower, or zero, milk deliveries by the applicant will also be considered on the merits of each case.

There will also be scope for dairy farm lessors to demonstrate they have suffered a significant event or crisis which resulted in their temporary or unforeseen change in status from producer to lessor, to be considered for a discretionary payment.

Secondly, limited discretionary payments will be available to other lessors who can demonstrate that they derived 50 per cent or more of their total income from the dairy enterprise lease and who can demonstrate their annual lease income has fallen by at least 20 per cent since 1 July 2000.

The DAA, the independent statutory authority responsible for administering the dairy adjustment program, will make recommendations to the Minister for Agriculture, Fisheries and Forestry on the merits of cases coming forward for discretionary payments. The assessment guidelines will allow more scope for consideration of cases on their individual merits. Some people have experienced difficulties in meeting the strict criteria which, for reasons of practical administration, addressed the typical circumstances of the large majority of DSAP applicants.

It is not intended there be a new general application process for discretionary payments; however, there may be some who self-assessed as ineligible under the old arrangements, where applications will have to be considered. The DAA will contact dairy farmers directly. If necessary, additional information will be sought from potentially eligible people identified during the DSAP application process. The DAA will, of course, be happy to receive information from people who believe they should be considered when the eligibility criteria for the package are announced. Eligibility criteria and guidelines for administration of these discretionary grants will be announced as soon as possible.

As with the additional market milk payments, discretionary payments will be subject to income tax.

Expansion of the Dairy Regional Assistance Program (Dairy RAP)

As the final element of the new package, an additional $20 million will be made available for the Dairy RAP, administered by the Department of Employment, Workplace Relations and Small Business. Dairy RAP grants are to generate employment and encourage growth through support for new business investment, and establishment of community infrastructure, including counselling services. Priorities for funding will focus on those regions most adversely affected by deregulation, as identified in the ABARE report. The bill provides for amendments to allow greater flexibility in the administration of the program, to ensure that more projects that are worth while can be brought forward and adequately supported early in the life of the program.

Funding of new assistance

The existing $1.78 billion dairy industry adjustment package is being funded from a consumer levy of 11c a litre on the sale of liquid milk products. The new assistance will be funded by an extension of the dairy adjustment levy into year nine (2008-09). Although it is difficult to project levy receipts, due to uncertainties such as interest rates and consumption levels so far into the future, it is estimated that the levy would be in place for an additional period of at least seven months and perhaps 10 months. The levy will also meet the administration and borrowing costs associated with the new assistance.

Industry consultation

Industry has been consulted on this new package of assistance and strong support is expected from farmers in the former quota states of New South Wales, Queensland and Western Australia, whom the ABARE report identified as being the most adversely affected by deregulation. However, farmers in all states will be eligible for the payments if they meet the eligibility criteria.

Widespread support is also anticipated for the discretionary payment provisions that will undoubtedly alleviate the hardship of those who have been inappropriately excluded from adequate structural adjustment payments. The expansion of the Dairy RAP will be welcomed by those communities in regional Australia who have been identified as being most adversely affected and who will have the opportunity to bring forward projects for funding.

Timing of payments

The government has moved promptly to address the concerns of vulnerable dairy farmers and their communities, in the light of the requests it has received from the industry, and as revealed by the ABARE report. Payments under the Supplementary Dairy Assistance Scheme will be largely based on DSAP entitlements and information already largely available to the DAA. Notification of the additional market milk entitlements will be made shortly after passage of this bill, and payments can be made promptly on completion of acceptance processes. I therefore commend this bill for early passage so that payments can be made to these most vulnerable dairy farmers and dairy-dependent communities as soon as possible.

The passage of this legislation will be given priority by the government, and I call on the opposition in particular to lend it rapid support so that the legislation can be passed and payments flow rapidly to dairy farmers. Obviously, the payments cannot be made until the legislation passes through the parliament and, therefore, the passage of it by this House should be considered a priority. I commend the legislation to the House and present the explanatory memorandum.

Debate (on motion by Mr McClelland) adjourned.