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Monday, 22 March 2004
Page: 26840

Mr BALDWIN (7:45 PM) —Tonight I rise to speak on the Dairy Produce Amendment Bill 2003. The dairy industry is not in good shape—it is not in very good shape at all. In fact, if I look at statistics from Dairy Australia, the number of dairy farms in Australia has halved over the past two decades—from 22,000 in 1980 to fewer than 11,000 in 2003. It will be very interesting to see, when that statistic is updated, the number of people that are left in the industry.

To understand the plight of the dairy industry, we need to understand a few basics. As you go down the supermarket aisles, Mr Deputy Speaker, you will see two types of milk. You will see generic milk, which retails at around $1.99 for two litres, and then brand milk, which retails at around $2.94, yet my dairy farmers are receiving less than 25 per cent of that margin. The member for McMillan wants an inquiry to work out who is making the money. If the farmers are making 25 per cent, let me tell you the people making the money are the retailers.

To give you an example of how bad it is and how tilted in the wrong direction it is, if we took a 600-millilitre carton of milk, a 600-millilitre bottle of Coke and a 600-millilitre bottle of water and then priced each item in the supermarket, we would find that the milk would be around $1.10, the Coke around $2 and the water around $1.25. It defies logic that water that is simply taken out of the ground and put into a bottle would retail for more than milk. To produce milk, you have to manage animals, you have to irrigate, you have to fertilise, you have to transport, you have to process and then you have to package; yet it is cheaper than water. These are the things that are unfair to the farmers, the people that put in the effort to keep this country going.

Last year I complained in this House about milk being 26.5c a litre and that my farmers were going broke and going broke at a rate of knots because at that time it was costing them around 30c a litre to produce the milk. Recently it was announced that farmers were going to get 32c a litre. If they are going to get 32c a litre and it costs 30c a litre to produce the milk, you would think they would be back in a profit situation. But, as we move through the seasons and different times, the cost of producing milk varies as well. I am informed that the current cost of producing milk is around 35c a litre. So it would seem that the processors, people like dairy farmers, keep driving this margin that is just unprofitable for them. We are seeing farmers exiting the industry like never before. In fact, 32c a litre is just over half what they were getting prior to deregulation. My dairy farmers were hoodwinked when it came to deregulation of the dairy industry. Dairy deregulation was put up as the saviour of the industry. Members have talked about guns being put to farmers' heads.

The member for Corio came in here tonight and misled the House. He misled the House because he said that the federal government had deregulated the dairy industry. I challenge the member for Corio to come in here and produce one section of Hansard that shows legislation introduced by the federal government that called for deregulation of the dairy industry. There has been legislation involving industry assistance packages, but there has never been any legislation forcing the deregulation of the dairy industry. The fact is that the dairy industry was deregulated because the dairy farmers voted as groups for deregulation, under pressure—

Mr Entsch —In Victoria.

Mr BALDWIN —Yes, from the Victorians, as my friend the member for Leichhardt says—from the state governments. You might ask: why did the state governments want to deregulate the industry? Because there were incentive payments of a few million dollars. What we saw was deregulation of the dairy industry by the state Labor governments for a few dollars. They sold out the industry for a few dollars. The management of the industry, by the organisation groups, sold out the farmers at the gate because it was expedient for them.

As I searched through all of the databases, the only federal involvement I could find pertaining to dairy deregulation, or any deregulation at all, was of none other than former Prime Minister Keating when he introduced the national competition policy that Professor Hilmer had advised him on so well. The reality is that the deregulation of the dairy industry was driven by the state governments. In New South Wales, Bob Carr's state Labor government could not get to the gate quickly enough: they wanted that incentive payment. The interesting thing is that not one cent of that incentive payment was ever paid to the dairy industry. Carr took the incentive payment and pocketed it—and that is exactly what we are seeing happen now with the deregulation of other industries in New South Wales.

The reality is that there is a huge imbalance of power between supermarkets and the small amount that farmers receive for their milk, which is, as I have said, less than 25 per cent. My farmers cannot continue to produce milk when the cost of production is greater than the price they are getting for their product, because all they are doing at the end of the day is eating up their assets to prop up a large organisation. From what I have read, I believe the free trade agreement will be good for a lot of industries, and it will be good for the dairy industry. But only five to 10 per cent of the milk from my area of Paterson is actually exported; the rest is for Australian consumption. Yet my farmers are having to compete with corrupt overseas markets.

I have brought to Canberra three gentlemen whom I have a lot of respect for: Dallas Clarke, Bob Koppman and Keith Watkins. Dallas Clarke is weighing up his options as to whether he continues in the industry. He has invested large amounts of money installing free-stall feedlots, upgrading his dairy. He took the punt, but that punt is very marginal and it looks like he may have done his dough. Keith Watkins is about to increase his herd. He has about 270 cattle and he is about to invest some money to see if he can make a go of it. And I hope he can. Keith Watkins—or `Bluey', as we know him—is a decent, honest, hardworking man who puts in the hours, puts his back into it and is battling to try to eke out an existence.

But there is one bloke, Bob Koppman, who has decided to pull the pin on the industry. Bob Koppman has a property in Nelson Plains that was running around 130 head of cattle. With the reductions in the milk price, he was losing around $40,000 per annum. he has had to take that exit and that has had a fairly deep effect. It means that local jobs have gone—people who were working on his farm. He is now just running beef cattle. There is one simple message: it is impossible to make money running beef cattle on a dairy farm, given the size of it, because you cannot get the number of cattle per acre that you need to make it survive.

At a recent roundtable in Sydney, which was put together by Andrew Stoner and Duncan Gay, Bob Koppman gave an address. I will now read that address into Hansard, because I think it is fairly pertinent: It states:

It is indeed a privilege to have been asked to address this round table discussion into the state of the dairy industry.

I along with other concerned farmers called a meeting at Dungog some sixteen months ago, many meetings have followed since that date. It appears that we have been treated with contempt until the National Party conference in Forster last year, a mutual friend and national party delegate spoke to a senior woolworths representative about dairying in particular. This conversation resulted in a meeting of grass roots farmers with two senior woolworths executives and was most fruitful. The results of that meeting were reported back to Duncan Gay. This resulted into a request from Duncan to visit some dairies in the Hunter. We took him to a variety of farms, some state of the art, others tidy dairies but in need of an update and some that would be forced to close and have in fact done so. Four of the more modern dairies recently upgraded with state of the art technology and managed by young men and women, heavily in debt and because of the price being received for their product, unable to see their way clear under the current circumstances. In January I received a request from Duncan to go to the Lachlan Valley and visit dairies suffering the same consequences with the added burden of no water but required to pay 65% of their license fee to the State Government.

Last week I attended the dairy delegates conference at NSWF and listened intently to the speakers, namely Dr Mike Ginivan, Alan Burgess ADF, Ian Langdon DF, Arthur Burns PNSW Dairy Div, Associate Professor Fredoun Ahmadi Esfahini. All speakers except the good professor spoke of persons talking the industry down and that it has to cease. The professor stated that there were sufficient money in the system for all of agriculture it just had to be distributed more fairly and clawed back from the retail sector and reduce their market power. Whilst I agree that talking the industry down is not good, it has to be clearly understood that the truth needs to be told. We are going broke at a fast rate, no longer having the ability to pass on or absorb ever increasing costs.

Please let me give you a view glaring examples of farmers in trouble.

In the M/G Valley, farmers are selling their machinery to second hand dealers, then leasing them back to create cash flow. Many have sold their heifers to the export market and are now short of young dairy stock. One very senior industry leader and adviser to government I understand has borrowed $500,000 at the rate of $1000 per cow to remain viable. Another has told me in private, I am hurting badly as the rest of you but as an industry leader I can't be seen to be talking the industry down. This farmer operates a share farm operation and his share farmers wife has recently returned to her profession because of financial problems.

To the retail sector may I say you do a sterling job in retailing all farm produce. However it must be clearly understood that if you wish to continuing during the quality of produce supplied (the best in the world) you have to make sure suppliers are paid more than the cost of production alone.

After serious and when the discussions with my financial adviser, Agri Business Banker, and our cooperative pricing section, I have taken the decision to exit the industry. I have no forward family succession plan and even if I did I do not see my operation being financially viable in the medium term.

The only way forward for the industry is in my view, full and frank discussion in relation to price. This will need to be sanctioned by the ACCC. Our milk supply management has and for me to expect downward pressure soon. And the price three years out will continue to remain flat.

It is my opinion that industry leaders have let the farmers down, our cooperative in particular needs a full and thorough ergonomic study into its Board of Directors and Senior management as we have not received a dividend for compulsory share payments for some time. My company has a modest share portfolio in National Foods and we are during a good dividend return, however in my opinion this has been at a disadvantage to their farmers suppliers. I wish the industry well particularly young farmers in my area.

I would like to thank Duncan and his staff for the mammoth effort in putting this round table discussion together, thanks also should go to my local Federal member Bob Baldwin who arranged meetings with the Prime Minister and the Minister for Agriculture at the federal level late last year.

To hear a very proud man like Bob Koppman having to deliver that speech rips your heart out. This is a man who put his heart and soul into building up a farm with world's best practices so that it could be competitive. But you cannot be competitive when the industry insists on paying you less than your cost of production.

I note that according to a press release from Dairy Australia Pat Rowley, the Chairman of Dairy Australia, has switched from milking cows to raising heifers. What message does it send when the Chairman of Dairy Australia gives up dairying to produce heifers? Something needs to be done; otherwise, under a free trade agreement we will be drinking milk imported from overseas. There will be no dairy farmers and there will be no milk processing companies because they will have driven the people off the farms and there will no longer be a product to sell.

There is talk about competition. If you are in the Hunter Valley in my electorate of Paterson, you have got Dairy Farmers. If you want to sell to National Foods or even to Bega, who were paying more per litre last year than other companies, the reality is that it costs 1c per litre per hour in a truck to move milk. So for Bega—which is about an eight- or nine-hour drive from Paterson—that is 8c or 9c per litre that you have to make up. The price advantage was only 1c or 2c greater than what Dairy Farmers was paying their farmers. To access other markets with competition meant that the farmers were, yet again, subsidising the price of their milk to be able to achieve markets. I do not think deregulation was the right answer for our dairy industry. As I see the number of farmers who have walked off the farms in my electorate, I know it was not the right decision.

There has been talk about reregulating the industry. The only people who can reregulate the industry are the state governments, and they would have to put up a very good case to be able to do it. But the people in control of the state governments are the Labor Party, so it is hypocrisy for the member for Corio and the member for McMillan to come in here and talk about how they stand up and represent their farmers. It is their Labor Party and their Labor governments throughout Australia that introduced the deregulation.

I do not want to get into who is to blame; I am more focused on what we can do for our farmers. I demand that Dairy Farmers, as my local processor, looks at the price it is paying for milk. If it does not, before too long it will be importing milk, at 1c per litre per hour in a truck, from other areas just to get the quantity to be able to keep up with the throughput it needs to keep Hexham operational. Over the years, I think Dairy Farmers has done the wrong thing by my electorate. It closed down the butter factory at Gloucester—and that cost jobs that were very much needed in Gloucester—and it had a rationalisation at Hexham. But how long will it be before it decides that is not viable because there are not enough farmers in the area? The question needs to be asked: why aren't there enough farmers? The reality is that it is because it has not managed its business affairs in a way that was conducive to people staying on their land producing milk. The irony in all this is that Dairy Farmers is a cooperative that is owned by people like Bob Koppman who have had to pull the pin on their dairy business because their own company could not pay them the money that they needed to survive.

What I do notice is that there is always enough money in companies like Dairy Farmers to pay their directors and their senior management large licks of money so they do not feel the ill effects of their decisions. Their decisions have caused serious havoc in towns in my electorate like Gloucester, Dungog and Nabiac, to name but a few. The damage that has been done by this dairy deregulation has been immense. Yes, there is an adjustment package, but that does not fix the fundamental and structural problems in an area, because it does not matter how much money you pump into trying to prop up and support an area. The reality is that without a core industry like the dairy industry, a town loses a little bit of its heart. And we have been doubly hit, because in those same areas we have lost our timber industry because of Paul Keating's wanton desire to make sure that no trees were chopped down. In some areas I support that, but in areas like Gloucester, Dungog and surrounding regions, which have been logged over years and years and the trees keep regrowing, it did not damage the area. That was one of the reasons why the Gloucester butter factory closed. They say it was due to the inability to get the sawdust to fire up the boilers.

Where do we go from here? I think that I would support an inquiry. We do have a primary industries committee, which is a bipartisan committee of this parliament. Perhaps it could take on, as terms of reference, looking at the future direction of the dairy industry. But it is not hard to work out who is making the most money out of the hard sweat, dollars and investment of my dairy farmers, and that is the major retailers. They should have a look at it and they should develop a social and moral conscience towards my dairy farming community.