Senator PAYNE (7:00 PM) — The management of change in all contexts in Australian life has been a bit of a focus for me, and in this regard the current reforms of the Australian dairy industry are of particular interest. In my work throughout most of New South Wales, I have often come into contact with various representatives of the dairy industry—from the northern reaches of the state to the farmers south near the Victorian border—and it is obvious that the industry is an important part of many rural communities.

Many senators would be aware of the significant contribution that the Australian dairy industry has made and of course continues to make to the Australian economy. Milk production in Australia is a major agricultural undertaking which ranks third behind the wheat and beef industries in terms of value added. The estimate of the gross value of dairy production at farm gate prices in 1997-98 was in fact $2,815 million—10 per cent of the gross value of agricultural production in this country. Around half of the milk produced here is now exported in manufactured forms, with just under 80 per cent of those sales destined for markets in Asia and the Middle East. Given the enormous significance to our world profile in this area, the deregulation of the industry is clearly important for anyone who is even slightly interested in the strength of rural and regional areas and of course the broader Australian economy. In fact, removing dairy farm gate regulatory arrangements in Australia represents the single biggest adjustment process of any rural sector.

Given that the dairy industry is facing increasing competition in export and domestic markets, deregulation has been recognised by many as an inevitable step to enhance the industry's growth prospects. In that context, I have been observing with interest the ongoing debate surrounding deregulation, not just in the parliament but across the country. Only on Monday night in the adjournment debate in the chamber, Senator O'Brien commented:

Given a comment like that, I find it interesting that many people would apparently have us believe that the entire process of deregulation is occurring at the behest of the federal coalition. This is quite simply not the case. It is quite clear from a number of sources but particularly from the Senate Rural and Regional Affairs and Transport References Committee's report on the deregulation of the dairy industry that the prime mover to change the status quo was Victoria. As the Minister for Agriculture, Fisheries and Forestry, Mr Truss, has also noted, the Victorian dairy industry has long sought a way into the lucrative markets of New South Wales and other states, with Victoria making the argument that they have the constitutional right to free trade across state borders. I think it is also worth pointing out that the initial impetus for reform in the industry was the agreement by states and territories, as part of their commitments under the national competition policy, to review legislation governing dairy marketing arrangements back in 1995. Of course, that had to include the agreement of the Keating, Goss and Carr Labor governments.

This federal government has delivered substantial and vital assistance to the industry in the form of the almost $1.8 billion dairy industry adjustment package. Under the package, payments will be available to dairy farmers to help sustain farms, processing factories, the workers they employ and milk service industries. The package, funded by a levy of 11c per litre on the sale of all liquid milk products, will assist not only those dairy farmers who wish to stay in the industry but also those who believe they would be unlikely to be viable in the new market situation and who decide to leave. The package was made available by the Commonwealth to assist if industry reform went ahead, but ultimately it was a decision for each state whether or not to pursue deregulation. For the Commonwealth, this was about demonstrating commitment and assistance to ensure that dairy farmers had the choices and the support to either continue in the industry profitably or make harder decisions with some dignity. It is important assistance, and, in my view, assistance by the Commonwealth is also important to discover whether there are perhaps other aspects of dairying that might have adverse effects on dairy farmers and their families.

As many would be aware, the industry is made up of three specific sectors: the dairy farmers, the processors and the supermarkets. Of course, supermarkets these days sell the most milk to consumers. My family is directly involved with the rural sector in New South Wales. My mother is a farmer in the Southern Highlands, although I hasten to add that she is not a dairy farmer. I have a real interest in seeing the industry continue to succeed as part of the broad rural sector. In fact, my grandfather and, with him, my father were dairy farmers in the Robertson and Burrawang district of the Southern Highlands, so I have some first-hand knowledge—if you relate it back to the stories that you hear from your parents—of the exigencies, as they might have termed it, of dairy farming. It is my understanding that the industry is now one of the most efficient producers throughout the country. I have referred to the millions of dollars of product we export annually. The quality is second to none. It is Australia's third largest rural industry, but over the past few months there have been cries for assistance. So where is the real problem?

There have also been recent references to the part played in the dairy industry by the supermarket chains. It is that area that I think warrants further investigation. Senators may well expect supermarkets to be closely monitored by the ACCC with respect to the implementation of the new tax system and particularly the GST. But, in addition, on April 10 this year the Minister for Financial Services and Regulation, the Hon. Joe Hockey, declared that the prices of leviable milk products were to be monitored by the ACCC under the Prices Surveillance Act. I think it would be instructive for the ACCC to further investigate possible and/or alleged rorts by the supermarkets in the pricing of milk. I think the supermarkets should be concerned about the operation of the ACCC and the Prices Surveillance Act because, under both of those activities, retailer profiteering is regarded as a very serious matter.

Prior to deregulation, dairy farmers and processors could supply milk only to consumers, stores and supermarkets within specifically designated zones allocated by the individual state dairy authorities. Now, in the deregulated market, milk prices have increased in the shops, and yet the number of dairy farmers who can survive is, it would seem, under threat. How is it that prices can increase at the retail outlet, at the supermarket, and at the same time those at the coalface are being asked to accept less? We are being told that milk prices will shortly drop in most areas of Australia. How will that impact on the already stressed dairy farming community? Many may not be aware that the three major supermarket chains support what is described as an 80:20 policy for milk sales—that is, 80 per cent home brand milk as compared with 20 per cent branded variety of milk. The milk processors supply supermarkets with two brands of the same product. One is branded as the supermarket brand, the other as the processor brand. There is no difference between the products except the price. The processor brands are more expensive and less plentiful. Therefore, the supermarket sells more of the home brand variety. The policy has lead to a discrepancy in the pricing of milk, and any brief investigation will conclude that there can be a price differential of up to 30c between the two varieties within an individual supermarket.

I have looked at comparative prices of milk within New South Wales and Queensland and found that there are significant discrepancies. It is of concern if the supermarkets are squeezing the processors to provide lower prices for home brands. In order for the processors to retain their profits, the dairy farmer gets squeezed at the end of the food chain. Subsequently, prices vary from state to state and even district to district. Some might say it has more volatility than the very contentious area of petrol pricing. The situation leaves open the claim that supermarkets have an extraordinary capacity to influence the price at which processors supply them with milk for home brand packaging. There is no doubt in my mind that the supermarkets then retain the benefits of the lower priced home brands and do not pass on the lower prices to consumers.

It means that the supermarket chains are able to manipulate the dairy farmers and the processors as well. The processors are hamstrung when it comes to speaking out, because of the threat of loss of contracts. The dairy farmers seem to be a diminishing number, and the question that requires an answer is: what happens to the supply of milk when the numbers of dairy farmers are so significantly reduced? What happens to them, their families, their stock and their properties? What happens when, at the very extreme end of the spectrum, we do not have sufficient milk for supplying the most vital requirements in Australia? That is a critical situation that could arise. We should challenge the supermarkets on the question of profiteering. The dairy industry, which is already taking the challenging step of deregulation, does not need platitudes or cheap political slogans. Regardless of what has been achieved in this debate to date, we need answers quickly if the participants in the industry are to survive. It is fair to say that milk, a very basic food product, is a very sensitive issue with all Australians. If the supermarkets are in fact profiteering in this industry, it is important to know why and to know what can be done about it.