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Tuesday, 23 March 2004
Page: 26944


Mr McARTHUR (5:34 PM) —I am very pleased to participate in the debate on the Dairy Produce Amendment Bill 2003 because of my long interest in both the whole process of the debate and the way in which deregulation finally took place in 2000. Let me say from the outset that I fully concede that the dairy industry is having a very tough time at the moment, because of drought, exchange rates and low world commodity prices, which I will refer to at a later stage.

Let me put on the record some of the comments of other members of this House. I compliment the member for Eden-Monaro, who has had a long association with the dairy industry. I think in the early days of deregulation he showed great courage, because he was confident that deregulation in the longer run would be better for his farmers in Eden-Monaro. I note his indication to the House that the Bega Cheese cheese and butter factory had improved employment opportunities because it moved into the export market and because it was game to approach activities beyond the smaller, regulated New South Wales fresh milk market. I commend the member for Eden-Monaro.

I am not so sure I can commend the member for Corio, because he has, as usual, taken some poetic licence about certain matters. He suggested that I am a squatter from western Victoria, and I would like to remind him that I am a free settler from western Victoria. My family came in 1839—unlike his family, who were probably pushed out of Ireland in the 1850s. The member for Corio remarked that he milked cows by hand. I commend him on that, but I want to know whether he can really milk a cow by hand, using both hands, and whether he was better than other members of the family. I suspect the member for Corio was always late to the cow yard in the morning and the evening and did not pull his full weight. As usual, the member for Corio was rather critical of the member for Corangamite, but we will square the record on this occasion. I do concede to the member for Corio that in his speech he made complimentary remarks about Pat Rowley, the leader of the dairy industry. I would like to support the member for Corio in those remarks: Pat Rowley, as the key leader of the dairy industry, has managed to bring about a major change in the industry, so much so that it is now a world competitive industry.

I will make a quick comment on what was said by other members. I think the member for Maranoa has been influenced by the fact that his dairy farmers were in the protected domestic fresh milk market in Queensland. The member for McMillan, who complained about some of the difficulties faced in the dairy industry, comes from Gippsland, where they have good rainfall. In the long run the farmers in McMillan will benefit from deregulation and the export potential of the Victorian dairy industry.

I think that the member for Paterson, as the member for Eden-Monaro and I observed, is drawing a long bow in suggesting that deregulation is the problem facing his farmers. The competition policy was part of the deregulation process but, there again, dairy farmers in New South Wales were protected because they had enjoyed extra pricing in the fresh milk market. The member for Forde was concerned about the results of the fresh milk market for the dairy farmers in her electorate.

I am delighted that the member for Flinders now understands the dairy industry and that he is supportive of the dairy industry in those parts of his electorate. The member for Blair, like the member for Eden-Monaro, has been very courageous in discussing the issue of deregulation. I well recall that the member for Blair had difficulties with some of his farmers who were facing the cold winds of competition and international pricing. The member for Parkes extolled the virtues of the export market and said that, in parts of his electorate, or close to his electorate, the dairy industry is expanding.

The member for Eden-Monaro and I have had great difficulty with the member for Kennedy, because he has a utopian view of the world. He thinks that, if we reregulate the dairy industry, all will come good and that if we go back to the 1930s it will improve even more. His speech leaves a lot to be desired. He wants to change section 92, and he wants to fix up the wool industry. Some of the views the member for Kennedy puts to this parliament are somewhat irresponsible. People respect the views of members of this parliament and he puts views that are fundamentally unsound and unable to be put into operation by either the opposition or the government. I think that is very unfair on the farmers who are suffering at the moment.

Farmers are in difficult times; we all concede that. Drought in Victoria and south-east Australia, a once-in-100-years event, meant that feed costs were extremely high. Dairy farmers who fed their animals with grain found that the price of grain had moved—I think it is currently $70 or $80 a tonne—up to extreme levels of $200 or $250 a tonne. Obviously, that pricing was a great problem for farmers trying to maintain production.

Water ran out for the irrigation farmers in northern Victoria, and they literally had no source of feed supply. The cost of water became exorbitant; water supplies did not exist and hay prices were out of control. So the dairy farmers faced some very difficult times both during and after the drought.

I concede that the low prices they now receive make it very difficult for the farmers. Although 25c per litre is at the lower end of the spectrum, it is interesting that reliable industry sources tell me that, in the longer run, dairy prices will be in the range of 23c to 35c per litre on the international export market. But right now it is very difficult, and I concede that point.

Added to these fundamental domestic difficulties we have the exchange rate moving in the wrong direction for the exporters. All exporters have this difficulty if they are selling in US dollars, be they beef producers, sheep producers, car exporters or iron ore exporters. So the problems of the dairy farmers are not unique in that the export prices they receive into Japan and other parts of Asia are in US dollars.

The major companies in Victoria have had some difficulties. The difficulties of Bonlac as a cooperative are well known. One of their major difficulties was that they hedged against the Australian dollar, backed the wrong horse and suffered considerable losses. They rearranged their affairs but, again, some of the dairy farmers are very unhappy with their operations. Murray Goulburn are, in my view, a very well integrated company, looking after their dairy farmers in difficult circumstances, with a long-term view of exporting their product around the world.

There has been a lot of discussion during the debate on this bill about deregulation being the cause of all evil. Let me say quite categorically that deregulation is not the cause of the difficulties facing dairy farmers across Australia; it is a problem for dairy farmers in the highly lucrative fresh milk markets which had the prop taken away. Everyone understands that.

As far back as 1984 or 1985, former minister John Kerin started the deregulation process. There are those opposite and even those on my side—the member for Kennedy and others—who say that deregulation crept up on them and was implemented by this government. Let us be clear that John Kerin, in his wisdom—I supported him, against some of my own people who were upset at the time—put in place a process that would open up the Australian dairy market to export incentives. Basically he said that we needed to make sure that this industry could export around the world, and I note that the Minister for Agriculture, Fisheries and Forestry agrees with the proposition that the dairy industry should have the capacity to export profitably to other nations.

The original proposition floated under regulation was that Australia would contain its production to about 5½ billion litres. The attitude was that the regulatory process would ensure that nobody overproduced and that the domestic market would pay an inflated price for milk. So we had the situation where, inevitably in the longer run as the Victorians became more efficient, that restriction on the marketplace could not last forever.

John Kerin, successive Labor ministers and then the minister at the table, the Minister for Agriculture, Fisheries and Forestry, finally went to a situation of deregulation in 2000, with a final deregulation package of $1.8 billion. The member for Kennedy does not mention that, and some of my own colleagues tend to overlook the massive and quite remarkable contribution of the $1.8 billion deregulation package which allowed a number of dairy farmers to readjust their enterprises. They either reinvested in their own dairy farms or made an honourable exit from the industry.

The Minister for Agriculture, Fisheries and Forestry, who is at the table, the member for Eden-Monaro and I could not recall such a package in other industries where the farmers were given such a large chunk of money over eight years, although many of them took it as a lump sum. The average payout was in the range of $100,000 to $130,000. That was a shot in the arm for those dairy farmers who were suffering at the time. They were able to make fundamental adjustments to either get a little bit bigger, and become more efficient, or exit the industry with some dignity.

The bill before the House is a technical bill, providing indemnity for the directors of Dairy Australia. I think that is commendable, because those directors are generally serving the nation in a voluntary capacity, with Pat Rowley as their head. The bill also provides some minor structural arrangements for the $1.8 billion adjustment funds to allow them to use financial instruments.

As I said, it is pretty tough in the dairy industry at the moment because of the debts that some of the dairy farmers have incurred during the drought, the low prices and the ongoing impact of the drought. For the record, I would like to refer to the article by Cathy Bolt on some of the updated figures that other members have been using. If we look at the number of dairy farmers in the industry, we see that as at 30 June 2003 there were approximately 10,500. That has come down from about 13,000 dairy farmers at the time of deregulation. More importantly, in 1970 there were approximately 47,000 dairy farmers.

We have seen a massive change from what was almost a cottage industry where there were large numbers of farmers milking 50 cows. The member for Corio was probably hand milking a few cows. He probably had about 45. But we have made progress since that time, and farmers now have a larger number of cows. The Victorians brought about change. They became more efficient, they used their irrigation, they used improved pastures, they developed a cheaper cost of production and a cheaper milk price and they were attacking those regulated markets across the border, be they in Queensland or New South Wales. So, inevitably, the regulated market would have collapsed—and I refute some of the arguments that we have heard from both sides of the parliament that the regulated market would have survived indefinitely.

I have met with the Australian Milk Producers Association. I have talked with them from the back bench and I, with my colleague David Hawker, the member for Wannon, met members of that group in Victoria. They have no real propositions. They make a lot of noise and they talk a lot about the problems in the dairy industry. Their proposition, as I understand it, is basically to reregulate the industry—and that will not happen. Their second proposition is that the government should inject another $1.2 billion into the industry and all the problems will be solved. They also have a proposition about interpreting section 92 so that they can reregulate the market.

If you look at the size of the cow herds, you see that we now have approximately two million cows. The average herd size has moved from 85 cows to 190, 195 or 200 cows. My own judgment is that, if they are becoming profitable, the cow herds in Victoria are between 350 to 450. Exports are now 60 per cent of the dairy industry—what a dramatic change from the domestic market, which dominated the industry, to a profitable export market. In Victoria we have 11 per cent by volume domestic production and the rest is exported. In the more normal year of 2001-02, we gained $3.2 billion worth of exports. That obviously fell back during the drought, but over the years we can look forward to the dairy industry potentially exporting $3 billion of hard-won export earnings to the nations around the world—providing prosperity for Eden-Monaro, western Victoria and Gippsland. I do concede the point that some of those other areas that were marginal do have some difficulties in maintaining their prosperity and their economics of production.

Finally, I will make a couple of remarks about the free trade agreement. There were strong representations from the dairy industry to ensure that Mark Vaile, as the trade minister, made representations to the US administration to allow Australian dairy products access to that very profitable and lucrative market. We now have an increase of $55 million per annum into that market. It is a small entree into the market, but it does mean that we can improve over time to get into a market which has the capacity to purchase and the capacity to take in processed product. I think the impact of the free trade agreement will be very much to the advantage of the Australian dairy industry.

Could I finish by saying that the shining light in Western Victoria is the Warrnambool Cheese and Butter factory. The minister at the table, the Minister for Agriculture, Fisheries and Forestry, has been to the Acme field days, and he opened them just a couple of years ago. He has seen for himself how a small cooperative factory, which has now been floated on the stock exchange, has been able to maintain their profitability—a bit like the Bega Cheese Factory. The Warrnambool Cheese and Butter Factory saw an opportunity, maintained their quality, kept the farmer's productivity high and have managed to ensure that they are showing a commercial and profitable rate of return. I would like to put on the record that John McLean, the general manager, and their board of directors, have done a great job to prove that there are commercial opportunities in the export field for people who are looking for opportunities and are prepared to take them up rather than consider that the end is nigh in the dairy industry.

As every commentator knows, in the longer term Victoria will become the heart of the dairy industry. They have free rain. I say `free rain' because they are not taking it from the irrigation channels. There is a reliable rainfall. The land price is reasonable and compatible to dairy production. The farmers are moving to bigger and better rotary dairies. The better operators are moving to bigger herds of 400 and 500 cows. There is no cost for irrigation water, which is now escalating to some unknown figure in the future. They are looking for export market potential. Like the cattle and the grain producers, they are out there exporting a product and looking at the quality at the dairy farm level and the processing plants to ensure that the product meets the export requirements.

I commend the minister for his diligence in handling the whole problem of dairy deregulation. I am confident about the future of the dairy industry. I am confident that, when we have overcome the problems of exchange rates and the recent drought, the dairy industry will bounce back. There will be a few who will not enjoy that prosperity—I understand that—because of their economies of scale. But I remain confident that, in the longer run, those who are specialist dairy producers will be profitable; they will help to make this a very good and sound industry. It will compete with New Zealand, our major competitor. It will compete with some of those highly subsidised European and Canadian markets. It will go from strength to strength because we—on both sides of the parliament, I might say—had the courage to deregulate the industry, turning it from an inward-focusing industry which relied on the domestic market into an outward-focusing industry which looked at the export opportunities over the next 30 years. I commend the bill, and I commend those who have shown courage in this debate, which has not always been easy.