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Monday, 22 March 2004
Page: 26828


Mr GAVAN O'CONNOR (6:49 PM) —The Dairy Produce Amendment Bill 2003 proposes a number of amendments to the Dairy Produce Act 1986 relating to the operation of Dairy Australia, the industry services body that took over many of the activities of the Australian Dairy Corporation on 1 July last year. Dairying is one of Australia's great agricultural industries and, in so many ways, is one of Australia's great export success stories. It is a highly productive industry that more than doubled its output between 1979 and 2003. The industry today produces around 10 million litres of milk every year from a national herd that totals just over two million cows. The number of cows has increased only marginally over the last 14 years, while milk production has doubled. This is testament to the way dairy farmers and the industry have taken up the challenge of working smarter, improving herd quality, introducing smarter breeding practices and, especially, adopting on-farm advances in the science and technology of dairying.

The gains have not come without some pain and cost to the industry. For example, in 1979 there were 22,000 dairy farmers milking an average 85 cows each. By 2003 the number of dairy farmers had fallen to 10,500, whilst the average herd size had more than doubled to 195 cows. I have personal experience of this process of adjustment in the dairy industry because I am the son of a Western District dairy farmer myself. I can recall milking the cows by hand and being around when we introduced milking machines to our property. I have also seen great changes in the design of dairies as well as herd improvements, and the advent of irrigated pastures. There are many ways in which the productivity of the industry has been dramatically improved, to the point where we have not only a significant domestic industry that is important to regional Australia but an export industry that is important to the whole nation. Today there are some quite important examples of farms milking over 1,000 cows. I note the presence in the chamber today of the honourable member for Corangamite. The honourable member is one of those squatters from the Western District. He was raised on a sheep farm and would not know what end of the cow the milk came out of. Be that as it may, it is good to see him in the House tonight and I am sure that this debate will be an education even to him.

A decade ago, less than 40 per cent of production was exported while today more than 60 per cent of production is exported. About two-thirds of our dairy exports are going to Asia, and Japan is our single most important market. I can recall a time when the exports from this industry were, in relative terms, quite minor at some $200 million. Now, of course, we have a significant export industry which is earning Australia around $3.2 billion per annum, although the drought and lower international prices have eaten rather savagely into this figure over the last 12 months. Most farmers currently receive 22c to 34c per litre of milk, depending on their location. The low prices received have been blamed largely on external factors such as drought and the strong dollar. For some farmers these prices are close to their 20-year average price, but for many, and especially for those who in the past mainly produced whole milk for the domestic fresh milk market, they represent a significant decline in price.

The single biggest problem for dairy farmers recently has been the drought, which is estimated to have cost dairy farmers in a number of areas around $1,000 per cow per annum. Rainfall in many dairying regions has been below average for seven years straight. I note that the honourable member for McMillan is in the chamber tonight. His electorate of Gippsland has been hardest hit in that respect with a paucity of rainfall in recent times. Drought has reduced production and forced up the price of feed and other inputs. It has highlighted the need to clarify a range of issues for farmers in irrigation areas. Many of these farmers face rising costs and cuts in water allocations. They are asking for a water policy that clarifies their rights and their futures.

Despite the problems currently facing the industry, ADF President Alan Burgess was quoted in last week's Weekly Times as predicting a strong future for the industry based on strong demand for milk products and lower input costs. That is a vision of the industry that I share, and which I know is shared by many in the industry even though they are currently experiencing some difficulty.

It is less than 12 months since Dairy Australia was established as a Corporations Law company and already the parliament is being asked to make amendments to the legislation as a result of oversights, omissions and mistakes made at the time Dairy Australia was established last year. With this government and with this particular minister this has become an all too familiar pattern, especially where previous statutory authorities have been converted to Corporations Law companies. The most important amendment in this bill relates to the administration of the Dairy Structural Adjustment Program. Under current arrangements, the directors of Dairy Australia as trustees of the Dairy Structural Adjustment Program could be held to be personally liable under the Corporations Act for any liabilities that arise that could not be satisfied by the fund. This bill proposes to retrospectively fully indemnify the directors of Dairy Australia against such liability.

The minister advises that these amendments do not serve to indemnify the industry services body against liabilities that arise from acts of negligence, fraud, breach of trust or any other actions not in accordance with the principles of trust law. In addition, there are provisions in the Dairy Produce Act and requirements imposed by the statutory funding agreement between the company and the government that impose accountability requirements in relation to the management of the fund. Given that the Dairy Structural Adjustment Program is fully funded from the 11c a litre that consumers pay whenever they purchase a litre of milk, it is highly unlikely that liabilities will ever exceed available funds and that these provisions will be needed in practice.

It is also highly unlikely that members of the current board of Dairy Australia would ever allow themselves or the company to be placed in a position where these provisions are needed. The board is led by Pat Rowley, a tireless champion of the dairy industry, who personally made great sacrifices to guide the industry through the murky waters of a deregulation that was forced on it by the Howard government and by the minister.


Dr Stone —By the states.


Mr GAVAN O'CONNOR —The parliamentary secretary says, `By the states.' She should read the Hansard and not come into this House trotting out that blatant untruth. Every dairy farmer around Australia knows exactly that the gun was pointed by the Howard government at the dairy industry's head.

While the amendments are sensible and I am advised that such provisions are normal practice when a statutory authority is privatised, I am concerned that we are making retrospective amendments to legislation for an entity that is less than a year old. We should ask this question: if these provisions are so important, why didn't the minister include them in the original legislation that set up Dairy Australia?

We on this side of the House have become used to being asked to revisit government legislation to fix up omissions and problems. Sloppily drafted legislation has become a hallmark of this minister and of the government. This minister has had previous problems relating to the accountability of boards and executives of Corporations Law companies set up to replace statutory authorities. Dairy Australia receives and expends a considerable amount of money provided by the Australian community and by dairy farmers. It is vitally important that the public and the dairy farming community can have absolute confidence that this money is being managed appropriately.

I say that again: I have every confidence in the current board of Dairy Australia, and I have every confidence in Pat Rowley as chairman. But there will come a time when these individuals will no longer fill their current roles and others will replace them. I want to be absolutely sure that the legislative structure that we have in place provides for an appropriate level of accountability to this parliament, to dairy farmers and, indeed, to Australian taxpayers.

In his second reading speech, the minister said that the accountability provisions of existing corporations laws and the statutory funding agreement provided adequate protection of moneys provided by taxpayers and dairy farmers. But this is the minister who also thought that he had the accountability structure right in the case of Australian Wool Innovation—another agricultural authority which was made into a Corporations Law company by the government. In the case of AWI, an all-party report of the Senate's Rural and Regional Affairs and Transport Committee—and I quote from the report because it is relevant to what the government has done in the dairy industry—found:

Any concern that there was no effective accountability through the board to both the minister and levy payers and that there was no system of internal controls in place should have been quickly and fully investigated.

As with Dairy Australia, there was a statutory funding agreement between AWI and the Howard government, setting out appropriate accountability and internal controls. In the case of AWI, the minister was handing this company $55 million collected from wool growers as levies and $16 million collected from Australian taxpayers. As early as February 2002 the minister was told that there were inadequate accountability and control systems in place, yet he did not act. This was not an internal problem for the company, as the department suggested to the committee. This was clearly a problem for levy payers and, importantly, for taxpayers. It was a direct and immediate problem for the minister. It required clear and decisive action. Unfortunately, as was the case with the US beef quota issue and the live export situation, the minister failed once again to take timely action. It is important that the lessons of the AWI fiasco are taken on board so that they are not repeated in the future with other bodies such as Dairy Australia.

In his second reading speech on the legislation related to the Dairy Structural Adjustment Program we are debating here today, the minister referred to corporations laws and the statutory funding agreement as ensuring:

... the fund continues to be prudently and professionally managed into the future.

In the case of AWI, it is clear that the equivalent provisions in legislation and funding agreements relating to that body did not provide adequate protection for either levy payers or taxpayers. The Senate committee's AWI inquiry highlighted a number of problems in the government's preferred industry service model. These are the problems that we want to avoid here with the dairy industry. The committee formed the view that all expenditure by these private companies should be spent in accordance with the terms of their statutory funding agreements and it recommended that all statutory funding agreements should include a requirement mandating that expenditure be consistent with the strategic plan, the operational plan and the research and development guidelines. I believe that there is a need to revisit all statutory funding agreements with a view to incorporating these changes. We need to be sure that the problems encountered in AWI are never repeated in organisations such as Dairy Australia.

This bill also amends the act to enable the company to borrow or raise money by dealing in securities. The definition of `borrowings' is also expanded to include activities such as raising finance by way of acknowledgement of debt and hedging through currency or other types of contracts. Labor also supports these amendments.

In the time remaining to me, I will make some comment on the current state of the industry, because despite the recent package of assistance to the dairy industry, which totalled some $2 billion, there are many dairy farmers—especially young ones who entered the industry and were not eligible to receive the package—who are doing it tough in the current environment. On St Patrick's Day and at the invitation of the great member for McMillan, I travelled to Trafalgar in Gippsland to meet with dairy farmers and their families to discuss the difficulties many of them are experiencing as a result of low prices received in the marketplace for their milk. I met with 12 dairy farming families on a farm at Willow Grove. I would like to publicly thank all who attended for their kind hospitality and for the way in which they entered into the productive discussions that took place on the day.

Many important issues were raised, and they will certainly be debated in the context of this bill, but there is one matter that I want to put front and square before the minister tonight, and I urge him to immediately respond to this situation in good faith. On 2 February, dairy farmers from this area wrote to the Prime Minister on matters of concern to them and their families. They were informed by the Prime Minister that the letter had been forwarded to the minister for agriculture for consideration and reply. The farmers waited patiently for four weeks, and when a reply was not forthcoming they contacted the minister's office and received little satisfaction as a result of their representation. I urge the minister to at least make contact with these farmers and to make some effort to understand their concerns.

Let me briefly outline the main elements of those concerns. The member for McMillan will expand on them in more detail when he follows in this debate. The central concern is that the price they currently receive for their milk—which ranges between 21c and 28c a litre and averages around 23c to 24c a litre—is simply not covering many of their production costs. Given their high debt levels and production costs, many are considering their future in dairying. The alarming thing for me was to see quite young farmers, who were not able to access the structural adjustment package and who are currently carrying high debt as a result of their entry into the industry, openly talking about whether they have a future in the industry. Because of the high average age levels now in the industry, this was perhaps one of the most disturbing aspects of the discussions that we had with those farm families.

The pressure on families of long hours of work without getting an adequate return have led some to question their future in the industry. Many of those operating farms are surviving only because one or two family members have been fortunate enough to secure off-farm work and income to sustain the enterprise through this period of stress resulting from drought and the high currency. The conventional wisdom from consultants and accountants is for these farmers to increase their herd size. But that is easier said than done, because that would bring a heavier workload and an increase in their current high debt levels.

The farmers expressed further concerns about the market behaviour of their cooperatives and retail outlets, their own level of return from the marketplace for their efforts, and the drop in milk prices that they expect on 1 July. I appreciate that there are no easy answers to the situation they currently face and the added difficulty of fronting governments with their problems in the face of the industry receiving around $2 billion in structural assistance via the Howard government's tax on milk, but there is a responsibility on government to hear these grassroots concerns and explore with farmers ways to secure the industry's future.

The minister, over a period of time in considering a package of assistance to this industry, professed to be concerned about its future. We met with young dairy farmers who are very concerned about their futures. They have made representations to the government, and the least the government could do is respond to those concerns. The member for McMillan, who will follow in this debate, will outline some of those concerns in greater detail. I urge the minister to take it upon himself to get out of Wide Bay—get out of his pork-barrelling mode in Wide Bay—and go down to Gippsland and speak to these dairy farmers. In that face-to-face contact, the minister not only will be able to hear their real concerns but also may be able to offer some assurance to those farmers that they are being listened to and are being heard. The Labor Party will be supporting the passage of this legislation through the parliament.