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Monday, 25 June 2001
Page: 25011


Senator O'BRIEN (5:48 PM) —I have to begin by saying that the Howard government's response to the difficulties currently facing the Australian dairy industry provides a clear insight into how this government operates. The government's approach to dealing with these problems also highlights how it sees its role in advancing the interests of people living in regional communities. The government's dairy adjustment strategy also exposes its lack of vision—not only for dairy farmers and dairy dependent regions, but for regional Australia generally. Since it came to power in 1996, the government's approach to this key industry also provides a sharp contrast with that of the former Labor government—and, I would expect, a future Labor government.

The Australian dairy industry suffered a severe downturn in the early 1970s, when it lost its traditional market in the United Kingdom. The government's response at that time proved to be one of the low points in public administration in this country. I am sure that senators—or at least some—would recall the scandal surrounding the Australian Dairy Council and Asia Dairy Industries around this time. Allegations about these organisations related to bungles, scandals, criminal behaviour and ministerial breaches of international trading arrangements—and ministerial heads should have rolled at that time, but they did not.


Senator Ian Macdonald —Who was that—Bob Collins?


Senator O'BRIEN —If you do not know who was in power in the early 1970s, Senator Macdonald, then you had better get back to your parliamentary digest. A number of matters surrounding this scandal were the subject of not one but two Federal Police investigations, and they were also the subject of a Senate inquiry. In the early 1980s dairy farmers again suffered an external shock—this time as a result of access restrictions and market corrupting export subsidies put in place by Northern Hemisphere producers.

In contrast to its conservative predecessors, the Labor government, in cooperation with dairy farmers, developed a plan to take the industry forward. The government accepted that it had an important role to play in taking this industry forward, and it accepted that role. As a result, the Kerin plan was introduced. This was a plan to manage adjustment, support domestic market sales and promote exports. It was a plan that also promoted increased efficiency by linking company returns to world prices. It was a plan that gave the Australian dairy industry confidence that it had a bright future and that it had a plan to get there. It was a plan that was not simply a financial prop but provided for a phased reduction in domestic support so as to promote industry rationalisation. That scheme was funded by a national levy of 2c per litre on all milk produced by Australian dairy farms. These funds were used to provide an export support payment for all dairy product exports. That support was wound back from 44.2 per cent above world parity to 22 per cent over the period 1986 to 1992.

The Crean plan came into effect on 1 July 1992. That plan continued to facilitate adjustment, while phasing down the level of support for the industry. It was replaced by the Collins plan, which was also known as the Domestic Market Support Scheme, and that came into effect on 1 July 1995. That scheme supported manufactured products, and it had the effect of raising the cost of products consumed domestically. Under that scheme, annual payments were made to dairy farmers, based on their production of manufacturing milk. Funds for payments from the scheme were generated through a levy on milk used to produce manufactured dairy products sold on the domestic market and a separate levy on milk used in the market milk sector. That plan was also designed by government and industry to progress adjustment in a managed and orderly fashion. That plan—as was known when it commenced on 1 July 1995—ceased to have effect as at 30 June last year.

It is interesting to note that, in the period 1991 through to this year, the projections on the rate of growth of production of milk in the industry have grown from somewhere in the vicinity of 6½ billion litres of milk to 11½ billion litres of milk in that time. So, whilst there was an intent that there be rationalisation in the industry and that the industry drive towards exports, there was also exponential growth in production.

These plans, developed by both the former Labor government and the industry, have seen the total milk production almost double. The dairy industry is now a highly efficient export oriented industry. Less than 18 per cent of milk is used for drinking products and the remainder is used to produce manufactured dairy goods. Australia exports around 50 per cent of its milk production. The excellent performance of Labor governments in supporting this industry has to be beyond question. This is an outcome that was not envisaged in the 1970s, when the industry was in a parlous condition.

The change in government in March 1996 meant a change in approach. Unlike the previous Labor governments, which planned well ahead in managing change, the Howard government did nothing. It had years to work with the industry to develop a plan to manage the pressures flowing from the end of the Domestic Market Support Scheme and state based regulation, but the Howard government did nothing. The parliament and the dairy farmers were then confronted with a ridiculous time frame in which to develop—and, in the case of the parliament, to consider—a plan to manage the industry post deregulation. These new arrangements—the dairy industry adjustment package—comprised three programs: the Dairy Structural Adjustment Program, the Dairy Exit Program and the Dairy Regional Assistance Program. The bills to implement the government's plan were not introduced into the House of Representatives until 8 March last year—in the year the DMS was to end.

That legislation was referred to the Rural and Regional Affairs and Transport Committee on that day. The Senate asked the committee to examine those bills to determine whether they met their stated aim of providing financial assistance to dairy farmers to enable them to manage further deregulation with minimal financial disruption. However, the committee was not provided with any detail as to how the scheme was to operate until just prior to the second day of public hearings, on 14 March. That was the day before the committee was required to report to the Senate. The result was that the manner in which the scheme was to operate was not properly considered. While it was clearly the opposition's view that the scheme was not given proper consideration, we were concerned that any significant delay in putting something in place could have a significant financial implication and place a significant financial burden on a large number of dairy farmers.

This change—the change that occurred post 1 July 2000—was very significant. Before 1 July 2000, the industry's two sectors—the liquid milk, or market milk sector, and the manufacturing milk sector—both enjoyed support by governments, either state or Commonwealth. The opposition felt that we had no choice but to pass the legislation, even though it was concerned that many farmers would suffer significant disadvantage. But those problems were all of the government's making. The government gave itself little time—and the parliament, frankly, no time at all—to ensure that what it proposed would do the job. For example, at the time, the opposition were concerned that Minister Truss's scheme might disadvantage lessors. I recall making contributions in this chamber about that, as I am sure do other senators. We were right.

The opposition were also concerned that the time frame set to process applications for assistance under the scheme was too tight. That has also proven to be the case. We were concerned that many farmers who had a legitimate right to assistance because of deregulation might find that under the Truss scheme they had no legal right. Again we were right. The dairy industry and the many regional communities that relied on it were faced with a hastily developed and implemented plan, and many of those farmers and communities are now paying the price. We are now dealing with a second package of assistance measures only because of the mess created by the government with its first attempt.

I want to make some comments on two aspects of the first Truss plan, as I will call it. The Dairy Exit Program provides a lump sum payment of up to $45,000 tax free to those dairy farmers wishing to leave agriculture. The dairy exit package is part of the Restart Re-establishment Grant Scheme, originally set up as the Farm Family Restart Scheme in 1997. This government put in place funding of $30 million, not paid out of consolidated revenue but paid out of the levy imposed on liquid milk purchases. To date only 32 farmers have successfully accessed this program.

The Dairy Regional Assistance Program had a budget of $45 million over three years—which I understood was to be expended at the rate of $15 million a year—to assist dairy dependent communities affected by deregulation. The Dairy Regional Assistance Program is intended to help eligible communities by supporting business investment and community infrastructure development and providing community access to training and counselling services. There have been three rounds of funding allocations under the Dairy Regional Assistance Program to date, which include, amongst other things, funding for a polocrosse field and funding for a private school wine appreciation group to promote the wine industry.

To say that this adjustment program has been a shambles is an understatement. One would have thought the government might have learnt something from the shambles of the first attempt to put in place appropriate support for dairy farmers, but apparently it did not. As with the first package, the Senate committee was asked to consider a revised plan without access to any detail as to how this second plan would operate. The committee did not receive the details of the plan until after it had concluded its public hearings. There was therefore no proper chance for the committee to ask the industry what it thought of the plan. Again, committee members were being asked to take the government on trust.

Apart from the administrative problems that inevitably flow when governments try to put programs into place in a rush, there is a fundamental flaw in the Howard government's approach to the dairy industry. That flaw is that there is no vision. The government has not developed a plan based on taking this industry forward; it has put in place a plan to deal with a short-term shock resulting from the end of deregulation. Here we are again being pressured to pass this bill because the government tells us it is urgent. It is the same argument as last time. It carries the same risks and, unfortunately, I fear we will see the same outcome.

It is interesting to note that in this debate we have seen comments from some other senators about the fact that we ended up with a deregulated industry. I am a member of the Senate Rural and Regional Affairs and Transport Committee, which inquired into the deregulation of the Australian dairy industry, and there are some interesting findings that I would like to take the committee back to, bearing in mind that these were the unanimous findings of the committee. There was no dissent from these findings from the government members of the committee, from the members of the committee representing the minor parties and certainly not from the opposition. At point 8.2 on page 169, the committee said:

It seems certain that farmers and regional economies will suffer under deregulation and, at best, the position of the consumer will not be improved. The winners from deregulation in the short term are the two major co-operatives, other processor and manufacturing companies, if they can maintain supply and perhaps some Victorian farmers, depending on their individual circumstances. Long term beneficiaries may be the Australian dairy industry as a whole, but that will depend to a large extent on reforms at international level which will provide Australian farmers and manufacturers with a more level playing field.

Senators may well recall the response that this committee received from the government. It was 14 or 15 lines basically saying, `We've passed the dairy industry adjustment bill and that has solved the problem.' I do not think you could say anything except that the unanimous finding of the committee was spot-on. That finding, on page 169, really depicts how the industry finds itself today.

What did the committee say about deregulation? Again, I stress that this was the unanimous, all party finding of this committee. At page 170, the committee said:

The Committee concludes that sooner rather than later the market will force deregulation and that a managed outcome with a soft landing is preferable to a commercially driven crash. The Committee also concludes that the proposed adjustment package will need significant refinement - there are questions in relation to its adequacy, targeting and the extent to which it fails to address the regional implications of the deregulation of the dairy industry which require determination.

Here we are back in this chamber tinkering with the package which, when it was brought before this chamber, was described as that which the industry wanted, that which the government supported and that which was going to fix the problem. Every problem that opposition senators or minor party senators raised about the package was rejected by the government, and I have outlined some of those areas—for example, the lessor situation. The government was adamant that there was no other solution but that which was contained in the package at that time. It thought that we would be irresponsible if we delayed the passage of the bill and that it was important that it be passed, notwithstanding the fact that we had concerns. The opposition and, I am sure, the minor parties thought that it was appropriate, as we had found, to have some sort of managed approach to ensure that there was a soft landing after deregulation rather than a deregulation forced by the market, which had already commenced in at least part of the liquid milk sector of the market.

Here we are today fixing the bungle created at that time and trying to put a few more bandaids on the problems, when the government should have known when they proposed the legislation that the areas that would have the greatest difficulty and face the greatest problems were particularly the states of New South Wales, Queensland and Western Australia. And where are the problems? The problems are substantially in those three states, and they were the states that relied substantially on a guaranteed price for market milk, which subsidised the production of milk for what we call manufacturing milk products. They were the areas that the problems would always have occurred in, but the government did not want to take responsibility for that. They wanted to say, `The industry can put up a package and we'll fiddle with it.' In fact, the government reduced what the industry wanted at the start. They said, `We'll fiddle with it, and then we want to take credit for it.' The credit has now come back to bite the government, because there is not much credit for the government. They are casting about trying to blame everyone else but themselves for the problem that they are substantially responsible for.