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Tuesday, 14 October 2008
Page: 9090

Mr CHEESEMAN (6:43 PM) —The Dairy Adjustment Levy Termination Bill 2008 will amend schedule 2 of the Dairy Produce Act 1986 to enable the dairy industry adjustment program to be wound up. Coming from Corangamite in western Victoria, I stand here representing one of the heartlands of the Australian dairy industry. There are approximately 295 dairy farms in the Colac area of my electorate, according to the 2005-06 farm census. These dairy farms contribute significantly to the local economy, to the Victorian economy and to the national economy.

A road trip through the unfortunately not-so-green landscape of my electorate at the moment reveals patches of forest, hectares of pasture and mixed farms. In a lot of places around the electorate you can see where old dairies used to be. The cement block buildings by the roadside are a reminder of a time when we used to produce a lot of milk—the effect of maintaining heavily supported state and federal government schemes. Now there is greater diversification. Not only is this evident in the visual cues; historically you can see the dairy industry has gone through a number of large-scale changes within my electorate over the years.

Importantly to the matter before us, eight years ago the industry underwent deregulation. As part of the deregulation, an 11c per litre tax was placed on retail milk, to pay for the deregulation. This revenue was appropriated to the Dairy Structural Adjustment Fund, which is managed by the privatised Dairy Australia Limited. The Dairy Adjustment Levy has been in place now for eight years and it has served its purpose well. As was the original intent, it is now time to wind it up. The modern Australian dairy industry is a large-scale, intensive operation using the latest technology to produce whole milk. Rotary dairies have replaced the cement block sheds and cattle are milked in large dairies which can milk up to 800 cattle per hour, with some operating 24 hours a day with three equally spaced milkings every 24 hours.

In recent years the Australian dairy sector has faced a number of significant challenges. These challenges include widespread drought, reduced availability of irrigation water and rising input costs, such as fuel, feed and fertiliser costs. Let’s face it, Australian dairy farmers have a very tough job. They are out there putting in the hard slog, day in, day out, year in, year out. Around this nation there is an immensely dedicated group of men and women who get up before the sun and go to bed after it sets. They are the people who get up in the middle of winter at 5 am, whether it is blowing a gale, pouring with rain, or freezing cold; they will leave the comfort of their warm beds and go out and bring the cows in for milking. That’s just the start of the scene which is played out all around this nation every day. There’s the popular expression that a particular person ‘could talk until the cows come home.’ Well, that is quite a long time. In between milking cycles, dairy farmers are not idle: there is always something to be done on the land, and maintaining a farm is extremely physical. It is a constant assault on the mind as well.

The thing that is weighing on everyone’s mind at the moment is the increased attention on water availability, the unreliable seasonal conditions and the legacy of ongoing drought. These place significant stress on farming families. I doubt many Australians would give much thought each morning, as they reach into the fridge to grab the milk, to where that milk has come from. When you do think about it, it’s amazing how much effort has gone into producing that litre of milk.

The regulated dairy industry was quite different prior to the introduction of the Dairy Adjustment Levy. There was the regulated market access to the fresh milk sector and the non-regulated manufactured milk sector. There were six separate dairy industries, one in each state, and there were high levels of Australian government assistance and complex state government regulatory intervention. There was Australian government support of the manufactured milk sector, and state government support of the market fresh milk sector. State marketing authorities such as the Victorian Dairy Industry Authority and the New South Wales Dairy Corporation were set up to administer this complex regulation.

Up until deregulation, dairy farmers selling their milk as market milk received a substantially higher farm gate price than the average price paid for manufactured milk, even though there was little distinction between the two products. Across Australia under this regulated market, a number of different schemes existed which allocated the large guaranteed price premium proportionally to all dairy farmers. State governments also engaged in establishing legislation that regulated interstate access to their market milk sectors.

The manufactured milk sector, on the other hand, was characterised by open access, with products from the sector being traded freely within and between states. Although the manufactured milk sector was characterised by open access, it was not totally devoid of the policies that distorted the market for dairy products. After much political lobbying by the dairy industry, the Australian government promised substantial adjustment payments to dairy farmers on the condition that state governments agreed to deregulate those industries.

The dairy adjustment levy was implemented in 2000 to lessen the impact of deregulation on dairy farmers and communities with a heavy dairy industry base, like those within Corangamite. This program has since run its course, with eligible farmers receiving 32 quarterly payments over eight years, the last of these payments being in August. Australian dairy producers are in a good position, due to increased capital investment over the past few years. The investment has been integral to improving their business viability. Over the past few years, farm gate milk prices have risen substantially. This is also a reflection of the strong global demand for dairy products and dairy related products from the major exporting countries.

Despite the Australian Bureau of Agricultural and Resource Economics report that income for Australian dairy farmers declined markedly in 2006-07, there was strong growth in milk prices in 2007-08, with the average farm cash income estimated to have increased significantly at the national level. In 2007-08 there were further reductions in the average size of milking herds, but, with improved seasonal conditions in some regions, average milk yield per cow is estimated to have risen. The Australian Bureau of Agricultural and Resource Economics stated in their media release on 2 September this year:

Farm cash incomes for dairy producers in Australia are estimated to have more than tripled to average more than $110,000 in 2007-08, while average farm business profit increased to nearly $24,000, up from a loss of $39,400 in 2006-07.

These results are welcome. Given that the adjustment program has fulfilled its purpose, and given the recent positive results from the industry, it is timely to terminate the 11c per litre consumption levy on fresh milk sales which has funded the program.

In winding up the dairy adjustment levy, it is also prudent to take into account and to amend a number of other acts which make reference to components of the levy. The bill will amend schedule 2 of the Dairy Produce Act 1986. These amendments enable the statutory authority, which was established as a part of the administration arrangements of the Dairy Structural Adjustment Program, also to be wound up. Any surplus levy funds will be returned to the Consolidated Revenue Fund, and this will enable closure of the Dairy Structural Adjustment Fund. Consequential amendments provided for under this bill will amend a number of other acts to remove references to the Dairy Structural Adjustment Program.

Outstanding business that needs to be tied up includes the initial outlays related to the adjustment program which exceeded the income from the levy. The Liberal government previously decided to use commercial loan arrangements to cover the initial outlays rather than budget funding to meet these initial costs. While final payments have been made to farmers, the levy continues in order to pay off those loan debts. Once the levy has generated enough revenue to bring the adjustment fund into balance, the minister can remove the levy, under provisions in schedule 2 of the Dairy Produce Act 1986. The Dairy Produce Act 1986 does not provide for winding up the Dairy Adjustment Authority. This bill allows the Minister for Agriculture, Fisheries and Forestry to make a declaration that the authority ceases to exist.

Today the rural sector has adjusted to the new rules of the dairy industry. Many properties have diversified in how their land is used, resulting in mixed farms rather than straight dairy farms. This is just one sign that dairy farmers have adjusted to the new sales environment and, accordingly, the 11c per litre on milk sold to consumers should be scrapped. The dairy adjustment levy has served its purpose. The fund has operated to assist farmers to adjust to the removal of state and Commonwealth government structures and price support measures.

In wrapping up the levy it is convenient also to wrap up the administrative arrangements that are connected to the levy. This is a levy that has been borne by Australian consumers and it is in the best interests of those consumers that the levy should be wound up as soon as possible. The dairy industry in my electorate provides significant income not only to the communities which my electorate supports but also of course to state and federal trade balances. I commend the bill to the House.