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Thursday, 25 March 2004
Page: 21936


Senator O'BRIEN (1:04 PM) —The Dairy Produce Amendment Bill 2003 proposes a number of amendments to the Dairy Produce Act 1986 relating to the operation of Dairy Australia, the industry services body that took over many of the activities of the Australian Dairy Corporation on 1 July last year. We should understand that dairying is one of Australia's great agricultural industries and one of Australia's great export successes. We have seen over the last 14 years the productivity of the industry almost double, with over 10 million litres of milk now being produced every year from a herd of just over two million cows. In the period of the doubling of production, the size of the herd has only increased marginally. That is just an indication of how well dairy farmers and the industry have taken up the challenge of working smarter, of improving herd quality, breeding and adaptation and especially of adopting on-farm advances in the science and technology of dairying.

Those gains have not come without some pain. In 1979 there were 22,000 dairy farmers, each milking on average 85 cows. By 2003 the number of dairy farmers had fallen to 10,500, while the average herd size had more than doubled to 195 cows. Today there are quite a few examples of farmers milking over 1,000 cows. A decade ago less than 40 per cent of production was exported, while today more than 60 per cent of production is exported. About twothirds of our dairy exports are going to Asia, with Japan our single most important export market. In recent years dairy exports have been worth around $3.2 billion per annum, although the drought and lower international prices have eaten into this figure savagely over the last 12 months. Some farmers are facing serious problems, with most currently receiving between 22c and 34c per litre of milk depending mainly on where they are located. The low prices have been blamed largely on external factors, such as the strong dollar and the drought. For some farmers these prices are close to the 20-year average price, but for many—especially for those who in the past produced mainly whole milk for the fresh milk market—they represent a significant decline.

The single biggest problem for dairy farmers has been the drought, which has been estimated to have cost farmers in a number of areas around $1,000 per cow per annum. Rainfall in many dairying areas has been below average for seven years straight. Drought has reduced production and has forced up the cost of feed and other inputs, and it has highlighted the need to clarify a range of issues for farmers in irrigation areas. Many of these farmers face rising costs and cuts in water allocations. They are asking for a water policy that clarifies their rights and their position. Even with the problems currently facing the industry, I do share the optimism of the Australian Dairy Farmers Federation President, Mr Allan Burgess, who was quoted in last week's Weekly Times predicting a strong future for the industry based on strong demand for milk products and lower input costs.

It is less than 12 months since Dairy Australia was established as a Corporations Law company and already the parliament is being asked to make amendments to the legislation as a result of oversights, omissions and mistakes made at the time Dairy Australia was established. With this government and, unfortunately, especially with this minister, Mr Truss, this has become an all too familiar pattern, especially where previous statutory authorities have been converted into Corporations Law companies. The most important amendment contained in this legislation relates to the administration of the Dairy Structural Adjustment Fund. Under the current arrangements, the directors of Dairy Australia, as trustees of the Dairy Structural Adjustment Fund, could be held to be personally liable under the Corporations Act for any liabilities that arise that could not be satisfied by that fund.

This bill proposes to retrospectively fully indemnify the directors of Dairy Australia against such liabilities. The minister advises that these amendments do not serve to indemnify the industry services body against liabilities that arise from acts of negligence, fraud, a breach of trust or other actions not in accordance with the principles of trust law. In addition, there are provisions in the Dairy Produce Act, and requirements imposed by the statutory funding agreement between the company and the government, that impose accountability requirements in relation to the management of the fund. Given that the Dairy Structural Adjustment Fund is fully funded, from the 11c a litre that consumers pay when they purchase a litre of milk, it is highly unlikely that liabilities will ever exceed available funds and that these provisions will actually be needed in practice. It is also highly unlikely that members of the current board of Dairy Australia would ever allow themselves, or the company, to be placed in a position where these provisions are needed. The board is led by Mr Pat Rowley, who is well known to be a tireless champion of the dairy industry and to have personally made great sacrifices to guide the industry through the murky waters of deregulation. It should be remembered in that context that it was the Howard government and this minister that forced state governments to deregulate the dairy industry by saying that there would be no $1.8 billion restructuring package unless the states deregulated.

While these amendments we are considering today are sensible—and I am advised that such provisions are normal practice when a statutory authority is privatised—I am concerned that we are making retrospective amendments to legislation for an entity that is less than a year old. If these provisions are so important, why didn't the minister include them in the original legislation setting up Dairy Australia? On this side of the chamber, we have become used to being asked to revisit government legislation to fix omissions and problems. Sloppily drafted legislation has become a hallmark of this minister and this government.

In his second reading speech in the other place, the Minister for Agriculture, Fisheries and Forestry expressly referred to the existing provisions of the Dairy Produce Act and to the statutory funding agreement as ensuring that the funds provided by taxpayers and dairy farmers to Dairy Australia are `prudently and professionally managed'. But this minister has had previous problems relating to the accountability of boards and executives of Corporations Law companies set up to replace previous statutory authorities.

Dairy Australia receives and expends a considerable amount of money provided by Australian taxpayers and dairy farmers. It is vitally important that the public and the dairy farming community can have absolute confidence that this money is being managed appropriately. I have confidence in the current board, but there will come a time when these individuals will no longer fill their current roles. Labor want to be absolutely sure that the legislative structure we have in place provides for an appropriate level of accountability to this parliament, to Australian taxpayers and to dairy farmers themselves.

The minister thought he had the accountability structure right in the case of Australian Wool Innovation, another agricultural authority that was transformed into a Corporations Law company by this government. In the case of AWI, the Senate Rural and Regional Affairs and Transport Legislation Committee, chaired by Senator Heffernan, found:

Any concern that there was no effective accountability through the board to both the minister and levy payers and that there was no system of internal controls in place should have been quickly and fully investigated.

As with Dairy Australia, there was a statutory funding agreement between AWI and the Howard government setting out what the minister obviously considered to be adequate and appropriate accountability and internal controls. In the case of AWI, the minister has handed this company $55 million collected from wool growers as levies and $16 million collected from Australian taxpayers.

As early as February 2002, the minister was told that there were inadequate accountability and control systems in place, and yet he did not act. This was not an internal problem for the company but a pressing problem for the taxpayers and levy payers funding its operations. It was a direct and immediate problem for the minister. It required clear and decisive action. Unfortunately, as was the case with US beef quotas and the Cormo Express fiasco, the minister failed to take timely action. It is important that the lessons of the AWI fiasco are taken on board so they are not repeated in the future with other bodies, such as Dairy Australia. In his second reading speech on this legislation, the minister said that the Corporations Law and the statutory funding agreement would ensure the Dairy Structural Adjustment Fund would be `prudently and professionally managed into the future'.

In the case of AWI it is clear that the equivalent provisions in the legislation and funding agreements related to that body did not provide adequate protection for either levy payers or taxpayers. The Senate AWI inquiry highlighted a number of problems in the government's preferred industry service body model. The committee formed the view that all expenditure by these private companies should be spent in accordance with the terms of their statutory funding agreements, and it recommended that all agreements should mandate expenditure consistent with the strategic plan, the operational plan and the research and development guidelines. I continue to believe there is a need to revisit all statutory funding agreements, with a view to incorporating these changes. We do need to be sure that the problems that occurred with AWI are never repeated in similar organisations, in this case Dairy Australia.

This bill also amends the act to enable the company to borrow or raise money by dealing in securities. The definition of `borrowing' is also expanded to include activities such as raising finance by way of acknowledgement of debt and by hedging through currency or, indeed, through other types of contracts. Labor supports these amendments and will support this bill.