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Economics References Committee
Australian dairy industry

DELAHUNTY, Mr Vin, Manager, Agribusiness Forum, United Dairyfarmers of Victoria

JENKINS, Mr Adam, President, United Dairyfarmers of Victoria


CHAIR: Thank you very much for appearing before the committee today. I invite you to make a brief opening statement should you wish to do so, and then we will open it up for questions.

Mr Jenkins : I know it has been a very busy time for all of you so I will keep it reasonably brief. As the elected president of United Dairyfarmers of Victoria, I am also a first generation dairy farmer. So in my position, we are not sitting at home very comfortable with life on the farm. We are running our business hard. The impacts of the way the industry unfolds are very much in the forefront of our minds when we run our own business at home. The situation last year has been mentioned a number of times this morning. The dairy industry, particularly for two years, has had very dry seasonal conditions. We are already under the stresses of seasonal conditions and, particularly up here in the north with very high water prices, so the input costs going into businesses over the last couple of seasons have been tremendous. That, coupled with the situation in April 2016 and the dropping of the milk price, left most businesses that supply Murray Goulburn and Fonterra in a very inflexible position, with two months to go.

It is incumbent on me to mention today that obviously there have been a number of inquiries going on—the UDV has been particularly working with a number of inquiries, particularly with the ACCC, doing investigations into Murray Goulburn and Fonterra, and farmers, as we heard this morning, have lost trust and confidence in a bit of the system. We have to make sure that the ACCC come out with findings very quickly to restore trust and confidence. Even with this inquiry, what are we looking at at the moment? We have come back to what happened in March and April last year. That is the issue that happened, and how did that happen? Was it a CEO and a board that mismanaged what was happening? We heard from Barry Irvin this morning that a number of companies, including Bega and Warrnambool Cheese and Butter, managed their risk, had two months to go with their season and rewarded their suppliers going through. They actually supported their suppliers.

Since the downturn obviously a number of things have been working through from our point of view. There is often a lot of conjecture of around 'What did you do?', 'Who signalled the market?', 'Whose role is it to signal the market?' I did go back through some brief communications that we started in March 2015—I am happy to follow-up on that at some point in time—through our hotline. For the record, I would like to say that our membership is a voluntary membership, it is not mandatory. It is about 40-plus per cent of the Victorian dairy industry, and we know that we have a lot higher representation than a lot of those organisations that it is mandatory to sign up to. We would like it to be a lot higher; it was a lot higher many years ago. In saying that, every dairy farmer across Victoria, through the processes, also gets communication from UDV and the advocacy arms so they know what is going on.

In 2011 I was a Nuffield Scholar—I was able to travel the world and understand all the agricultural markets around the world. We saw the impact of the EU and what they were doing with their quotas. They were gearing up; some were buying more quota, knowing that in only two years time they would be taking it off, to increase their herds. We saw the capacity of that market increasing so much that it was going to end up somewhere in the world market, and then with Russia closing their borders to the EU the market had to find somewhere to put its milk and obviously that affected some of our traditional markets in China and Asia. I wanted to say that to give an understanding of what is happening in the world market and what played out last year in our markets, to the detriment of our dairy farmers at home.

We have worked with the federal government with the concessional loans, the farm household income. Our space in the business side has been to work with the ACCC and hand information onto ASIC. To clarify your question around what legal things we can do as a body—can we look at contracts and so forth—that is one of the first things we did. We collated the information from our members and we also sought high legal opinion. We are not an organisation with huge amounts of funds to take on a massive case, but we sought high legal opinion on whether the contract arrangements and what happened in April were correct; could it be done. We are still waiting for answers, even from the federal government—can that actually be done? Was it legal? We are still waiting for the ACCC to give us the answer on those contracts. We handed over the information from a legal perspective, and we are still waiting. The report was supposed to come out in August and then in December, then it was supposed to come out in early January, but farmers are still waiting to see whether what happened last year can happen again. Our position from day one has been that we do not want anyone coming into our market, getting halfway through a season, chasing supply off other companies and then turning around and dropping the price. We have talked about the code of conduct this morning. That is the sort of mantra we have taken on—we want to minimise or remove that type of activity.

The second part of what we have been activating is the social welfare space in terms of the mental health and wellbeing of farmers, working with state governments to roll out packages for health and wellbeing. We have activated three or four different groups around Victoria, particularly, working in with Regional Development Victoria, working with the department of agriculture, working with all the health services, to gauge how people are feeling and rolling out resources when people are under stress financially as well as mentally. We hear a lot about that and say, 'All we want is a better milk price.' That is not going to fix the problem, but I think that when you go through any crisis you have to provide the resources where there is market failure. People have to be able to access to those resources to make sure they are in a good position, mentally, to go forward.

Since the symposium we have been working with ADF, which you heard before, around the voluntary code of conduct that we have been developing. I think it has been a really good thing. There were comments before that it has taken far too long. We have actually got a draft code almost up and running. We started in September and we are now in January and we are not far from delivering. When you look at the investigations that are going on in our industry, they started in April and we are still waiting for some results. I think we have worked really hard. I think we have worked really well. I think our industry, even though it was born out of cooperative principles and by working together—we have only got a couple of cooperatives left in our industry—has been very strong. We do work really well together. Yes, we do have splinter groups and factions, but generally, as farmers and rural community people, we work really well together. Again, I think it is up to all of us to solve issues and get involved and work through the system. That is my opening statement. I know it has been long and I know you have got time constraints, but I am happy to answer questions. Vin, do you want to make a comment?

Mr Delahunty : No.

CHAIR: Thank you. You have been working with the ADF in relation to the development of the code of practice. From the processors' perspective, do you see them dragging their feet at all in this process?

Mr Jenkins : Not at all. I think it was very clear. As I said, from the dairy symposium that happened in late August last year there was a very clear initiative from the government and also from the agriculture commissioner, Mick Keogh, who said, 'You people need to get together and start sorting it out or we will fix it for you.' Within a couple of weeks, in September, we sat down with all the major processors. All the major processors signed on. Obviously, with the competitive nature of the industry, you have got to have the ACCC in the room. It made it very clear with the small business unfair contract legislation that came in on 12 November and it put us in a really good position to start saying, 'If that legislation had been in place 12 months ago we would have been in a much better position to advocate that what happened was not right.' With the 12 November legislation in place and with the ACCC saying, 'You need to help sort it out,' I think then the shields were down and we actually worked really, really well to come to some agreement. I believe there is still some fine tuning, as we have heard even this morning, to be done with some of those practices—particularly around the clawback and around transparency—just to make sure we get that right.

CHAIR: Are there any provisions in the code of practice to prevent secrecy arrangements?

Mr Jenkins : Not at all. And I think that is one of the things we need to get the transparency up and running. When we talked this morning about how people feel about trust and transparency, there is no doubt that in our industry contracts have been signed under confidentiality agreements, even within companies. That has caused a fair bit of a rift between people coming forward, even to the ACCC, to hand over their information, because they have supplied a company, then they have moved and their neighbour has supplied that company for 20 years but they have signed up to a better deal. That is market forces, I know, but we have had an uncovering of those contracts and that secrecy around it—so, yes, very much more around transparency. To get rid of the secrecy in the pricing structures would be really good.

Two or three years ago, UDV contracted some very good consultants throughout Victoria to look at the pricing structures in our industry. Because we believe it is getting not so much a matter of secrecy but it is getting very complex, we came up with 30 to 50 components of a milk price structure. When you have got 30 to 50 components of what makes up your milk prices—some of those are quality bits and some of those are production bits—that is unbelievable for the average family farm business to sit down and go through at the start of the year. The next piece of work with the code is to actually work in the industry and say, 'Let's reduce the noise, let's get the transparency right, and let's actually make the decisions in farming: how well you as a manager can efficiently produce the milk, rather than relying on some other incentives.'

CHAIR: How is that aspect of the negotiations going—is that nearly finalised?

Mr Jenkins : No, that will be the second part of the code. The code of conduct will be the first part; this will be a second piece of work. After last year, I think it is quite obvious that all of the companies are now starting to really understand, particularly in the southern milk pool, what pricing needs to be. The question we are always asking now is, 'Are we delivering the market value back to the farm gate?' In industry we have asked the question a number of times. We are quite strong advocates of taking the spring price milk and loading up the shoulder, which means you are loading up risk in certain things—you are actually building more risk into people's businesses. We have highlighted that quite extensively; if you are going to build in that risk to businesses, they have to be well rewarded. The processors understand that, too, and we have probably moved into a corner. I think there is acknowledgement now of the need to start unpacking that as an industry for moving forward.

Mr Delahunty : I will just make the point that that particular piece of work has significant challenges because the size of the milk pool—or the value of the milk pool—is finite so, if one lot of farmers is being paid a higher price than the other farmers, then there will be some resistance to some of the changes that are proposed. From an industry perspective we have quite a lot of work to do to make sure that we are able to apply the transparency, the equity and the fairness in that whole milk supply chain.

CHAIR: In terms of the development of the voluntary code, what do you say to the criticism that some people have that there should be a mandatory code?

Mr Jenkins : That is an interesting point. The voluntary code, from our view, is where we wanted to start. The draft code has a 12-month review period, so it really has got us a bit more flexibility. With sign on being voluntary, we have all the major processes in place and they are almost signed. In terms of making it mandatory to sign on, you see with some of the mandatory horticultural codes that when the market moves you can end up with a situation where there is a certain element of people who are a lot worse off. We want to make sure that we are capturing everyone. If you then start lining up milk companies' contracts, farmers can have the ability to say, 'Does it line up with all the things that are in the voluntary code?' and they do not have to sign it with their processor unless it lines up with the code. I think that is a good step forward.

Mr Delahunty : To add to that, there is a number of people who think that mandatory is compulsory and, from the ADF submission previously, we understand that not to be true.

CHAIR: In your submission you do not say a lot about collective bargaining. As an organisation, do you support collective bargaining? Do you think it should be promoted, or do you think it is not worth people pursuing?

Mr Jenkins : I think that, as an organisation—similar to ADF, our parent body—we support that democratic right for any party. If people want to have their collective bargaining group, which there are in the different states, then I think that is incumbent upon them. Is it up to us to say they have to have collective bargaining, and is it up to us as an organisation to say that the processor has to deal with that person? I think collective bargaining is one of those things that is a democratic right. The trick with collective bargaining and so forth is that you have the ability to collectively bargain for a certain period of time, then you will always get splinter groups that start bargaining on the other side. So, in essence, some of the core principles are correct, but it does not always work out exactly. But we do not have any particular opinion on whether it is wrong or right.

CHAIR: So you do not promote it as a way of evening up the bargaining position between individual farmers and the processors?

Mr Delahunty : It has not had a place in the Victorian milk industry to this point. I think perhaps the reason for that is the farm gate competition for milk. I think Barry Irvin talked about seven or eight different people hunting for milk in northern Victoria at the moment—the sense that a farmer can provide their milk to a number of different companies has given them the sense that they have a certain control in the process that perhaps the northern or western dairy farmers do not have, which is why they are looking for collective bargaining agreements.

CHAIR: I could be wrong, but I think there are some Victorian farmers who are members of the dairy farmers supply cooperative.

Mr Delahunty : That is correct.

Mr Jenkins : Yes, that is correct. We fully support the democratic right. There is DFMC and there is Bonlac Supply Company, which do not actually collectively bargain as such, but there are groups of suppliers that supply different processors. We are yet to see how the Victorian dairy industry will transpire and if it is collective bargaining that people have a democratic right and have access to, well, we are not opposed to that.

CHAIR: You have the word 'united' in the title of your organisation and you talk about people working collaboratively. It seems fairly obvious to me that that would be one way for people to come together to get a better deal. You are saying to me that you do not promote it, you do not have a positive attitude to it, you have a hands-off approach to the concept of collective bargaining?

Mr Jenkins : Yes, it is a hands-off approach. It is not our space to be in a collective bargaining position. The members have made that very clear over time and we respect the rights of the members. That is who vote and elect us and that is their right. Is there a point in time when that will change and people will join us and want to do that? That is a democratic right that we will go through at that point in time?

CHAIR: In your submission you talk about distortion in pricing signals and you say that, while farmers respond to pricing signals from processors, these signals are not achieving the desired outcomes. Can you tell us a bit more about that?

Mr Jenkins : Yes. As Mr Irvin alluded to this morning, we have been known to get into a very competitive environment at the farm gate to the point where we start to pay a higher price that they cannot extract from the market. If you look at the natural supply curve—not a flat curve but a grass fed, seasonal calving herd or a split calving herd—they will respond to those prices. As prices get higher and higher, you will respond to those in the way. As I said earlier, that is the risk we are building into businesses. If the true market value is not being reflected in that price and we are overinflating that price, we are actually sending the wrong signal to the farmers. As we saw last year, you cannot unwind it and if you do unwind it, it is not very pretty and it has caused a lot of stress. I will give you an example of that.

In my own area, there were a lot of autumn calvers last year supplying Fonterra. They were gearing up very early autumn calvers in March and they have always responded because that period has a higher price. In peak calving and peak milk, but by April the price had dropped from $5.60 to $1.91 over the next couple of months. Those are the ramifications of a wrong market signal. Those people lost hundreds of thousands of dollars when they would normally make up that going through that part of the year; they have set up their business for that. That is the sort of thing I am talking about, that risk and distortion in market signal.

CHAIR: How can we address that? This seems to go to this issue of market failure. If aggressive competition is leading to unsustainable prices, how do you address that?

Mr Jenkins : I think it comes back to transparency right throughout the marketplace and understanding the value of the milk price and the milk value is on the market, and getting that back to a more sensible farm gate milk price. The industry has been very good at doing that over a number of years, but the last number of years with the change in dynamics with companies and the milk and the Asian market that has unpicked what has happened.

Senator HUME: When we spoke to Mr Irvin about $1 milk prices, he suggested that $1 milk in and of itself is not really the problem; the problem with $1 milk is that it devalued the work that dairy farmers did. Do you have an opinion on that issue?

Mr Jenkins : Fundamentally, you have hit the nail on the head. It fundamentally devalues the hard work that you do. You walk into a supermarket and you see it at $1 a litre and you see water at a higher price. Mentally, it devalues the work you have done. But understanding what Mr Irvin did say really clarified that, that last year some of the $1 a litre part of the pricing cabinet returned a higher value than some of the other products. So we need to be very careful.

At the end of the day, I think one thing for our industry to really look at is the very strong competition we have had. We have raced the contracts into the supermarket tenders and we have pushed down the price ourselves. We have actually done that ourselves, so that is something we need to be mindful of. That is not something in our control, but as a dairy farmer I am certainly conscious that the companies need to act more responsibly. It is cutthroat on the supermarket shelf, but we are also undercutting the market a bit too.

Mr Delahunty : I want to pick up on the point that, particularly in Victoria, our income reliance on fresh milk is much lower than it is on manufactured products like cheeses, yoghurts and those sorts of things. If those products are priced in the same spirit as the dollar-a-litre milk is being priced, that will in fact have a bigger impact on Victorian dairy farmers than the dollar-a-litre milk. I think that is the point he was making.

Senator HUME: I got the sense from the other hearings around the country that dollar-a-litre milk greatly affects Queensland dairy farmers particularly, and the flow-on implications of that are equally great for the Victorian dairy farmers, because Queensland cannot maintain a viable industry.

Mr Delahunty : The issue for Queensland is they are almost totally reliant on the fresh milk market, whereas we have access to the manufactured products for some of our milk.

Senator RICE: Can I ask a follow-up question about the $1 milk. Do you feel that the $1 milk should be stopped, that it should not be permitted to continue?

Mr Jenkins : As I said, it is an interesting one that we have looked at for a while. Look at the question: are the companies getting a return out of it? That is a question for other people to answer. But the other part of it yes, if it is used as a loss leader across the retail sector, that is fundamentally not quite right from the dairy farmer's point of view.

Senator RICE: Yes. We have heard evidence from the Queensland farmers that their price of production is higher. The margin is pretty close to zero. So, even if it is not a loss leader, there is nothing in it. It is to get people in the door, pretty clearly.

Mr Jenkins : I think the big thing when you look at the branded milk and the $1-a-litre milk—and Mr Irvin made the point this morning about making a successful dairy industry going forward—is we have to make sure we do the research and development on the farm side but also put enough value back into the research and development on the factory side of things. That is fundamental. If a product is devalued, they may make a smaller margin on it, but it also underpins some of the investment in that type of thing.

Senator RICE: Given that viewpoint on it, even if you feel uncertain as to whether it should be definitively stopped, it is certainly undesirable. What mechanisms do you think are the most appropriate to get that to happen?

Mr Jenkins : That is a good question. As I said, I certainly do not understand the relationship that a corporate would have with its retailers. I am not in that space. But, as a dairy farmer, yes, fundamentally we need to look at that type of activity because it underpins some of the other relationships going forward too.

Senator HUME: I am going to follow up on Senator Rice's follow-up with a follow-up. One of the other submitters—and, forgive me, I cannot remember who it was—was talking about a program in another state called 'Buy local, buy branded milk'. They said it was very successful. I have not seen the figures on how successful it was, but it demonstrated that there was a real commitment from the consumer to better prices for milk that flowed on to the dairy farmer, indirectly if not directly. Has there been a similar program in Victoria? If there has been, or if there should have been, who would have been responsible for a program like that?

Mr Jenkins : From our point of view, and we are reviewing all the things we do as a dairy advocacy group, we should be constantly in that space. After last year's downturn we did make it very clear that the branded product was something that returned a lot more to the dairy industry and the farmers. Whose responsibility is it? If it is branded stuff, there has to be a united approach to making sure we are buying branded milk. The issue with that is we are starting to see the retailers getting pretty fierce—there are three of them now—with the providence type brand that is named after a farm. It is not a farm at all; it is just a basic retail gold label, stamped as a farm, giving it providence. That is something we need to start watching out for as well. So it is upon all of us and the dairy advocates—and also the corporates—to start looking at that space.

Senator HUME: There has not been a specific program in Victoria to buy branded milk?

Mr Jenkins : No, there has been no program. The program basically came from the angst from all the farmer groups last year with the downturn in the prices—to move away from the dollar and show that we could. The other scenario is that we do have, and let's be honest, families out there that cannot afford the socioeconomic part of it; they can only afford dollar milk.

Senator HUME: Yes.

Mr Jenkins : We have to respect that right too. But, overwhelmingly, we support people moving into the branded product.

Mr Delahunty : I think that program you are referring to is a Queensland program—

Mr Jenkins : Yes, it is.

Mr Delahunty : I am not sure how long it has been running. We have some regional challenges to run a program like that, because there is South Australian and New South Wales milk processed in Victoria. We talk about 'southern milk pools' rather than the states. But there is certainly an appetite for the kind of program that you have raised. You see that in supermarkets with more of the prominent-type products that are appearing—again, particularly in the manufactured side of things, with cheeses and some of those other products.

Senator HUME: What about the smaller supermarket chains—the IGAs? I know that Harris Scarfe, for instance, in New South Wales has made a concerted effort to brand and price milk appropriately.

Mr Jenkins : Yes, and we are seeing more and more of that now. Even particularly in our area and in Gippsland, we are seeing the Gippsland milk going into McDonald's. So we are seeing the provenance story starting to take hold, and I think that is what is probably scaring the retailers a little; they are starting to want to move into that space too. But, certainly, we are seeing a rise in that provenance even going into our own area—a local, South-Western Milk, is ending up in our IGAs; in Gippsland it is ending up in the McDonald's and in some of the bigger retailers. I think it is fantastic.

Senator XENOPHON: Yesterday in Perth we heard from Mr Andrew Weinert, who is a dairy industry expert. He gave a very detailed submission to the inquiry—I am not sure if you have seen it—

Mr Jenkins : No, I have not read it.

Senator XENOPHON: I would recommend that you read it. He talks about the industry facing market failure. Essentially, he says that it is a case of illogical outcomes resulting from seemingly logical actions. He made a point, extracting from the 1989 annual report of the Western Australian dairy district authority, that the cost structure for milk sold in Perth, in one-litre cartons, back on 30 June 1989, which is—what?—27 years or almost 28 years ago now, was 90c per litre. Things have gone up since then. How can it be that milk is being sold at virtually the same price as it was being sold almost three decades ago? How is that fair to the farmers?

Mr Delahunty : The answer is not fairly. But I think, again, I will pick up one of the points that was made during the ADF presentation about the on-farm productivity improvements through both genetics and feed-based systems. So the cost of producing the milk is coming through efficiencies at the farm gate; it is the farm that is actually providing the capacity for that pricing point to be maintained.

Senator XENOPHON: Mr Delahunty, are you saying that $1-a-litre milk is viable for this industry? Viable for the farmers?

Mr Delahunty : I am not saying that; I am trying to—

Senator XENOPHON: Are you saying it is not viable? Are you saying that it is an unsustainable price?

Mr Delahunty : I am trying to understand how in 27 years a 90c milk price can still be at 90c.

CHAIR: Just a follow-up to that: are you saying that the impact of the productivity improvements has offset the inflationary rise of the 90c per litre cost structure?

Mr Delahunty : In effect, I think there is an argument that says that is right.

Senator XENOPHON: Hang on—so you are saying that the productivity improvements mean that things are basically okay for most dairy farmers?

Mr Jenkins : You need to qualify that the milk you are talking about is $1-a-litre milk, which is drinking milk. That is only seven or eight per cent of the total milk volume that is produced.

Senator XENOPHON: But it does drive the price—it does set the price.

Mr Jenkins : It does not set the price; the global commodity price market sets the price.

Senator XENOPHON: But you do not think that the one dollar milk campaign that started on Australia Day 2011 did not have an impact on the industry?

Mr Jenkins : As I have stated on the record, fundamentally, that as a dairy farmer, I do not like $1-a-litre milk. That is very clear.

Senator XENOPHON: No, it is not a question of whether you like it or do not like it. Has it had an impact on the price that dairy farmers receive overall? Has it had a dampening effect on the price that dairy farmers get for their work?

Mr Jenkins : As I said, there is a basket of goods across the whole dairy cabinet. It is not just pinned on the dollar-a-litre milk—as you heard in Mr Irvin's speech this morning around where the fundamentals are of pricing points from the farmgate price point of view. But I take your point: from 90c to a dollar in 27 years—we should take on notice to have a look at what has gone on there. But the dollar-a-litre milk does not set the price for the industry.

Senator XENOPHON: Mr Delahunty has just said that it has probably been offset by productivity improvements—they have cushioned the impact.

Mr Jenkins : Before 1980, at the time you are talking about—the 27 years—we had a regulated milk market. We deregulated the milk market, so that takes into account some of the efficiencies. Then we saw in 2011, after we deregulated, that we went from the $1.40 or $1.50 or whatever it was down to the dollar. Both ADF and UDV and other advocacy bodies said it is fundamentally wrong to make a loss per litre, because that is what their plan was and they said we would have it for a couple of years

Senator XENOPHON: My question a few minutes ago was: has the dollar-a-litre campaign started by Coles on Australia Day 2011 had a dampening affect overall on the price that dairy farmers get for the complete commodity? Is that a yes or no?

Mr Delahunty : I think the answer has to be yes, but not just milk on its own. We talked about the impact of the other manufactured products as well.

Mr Jenkins : Again, we would have to do more research on that, because the dollar-a-litre milk does not set the farmgate milk price. There are only a certain amount of manufacturers producing the dollar-a-litre milk. As you heard from Mr Irvin, his company has 65 per cent domestic and a number of export products. It does not actually have dollar-a-litre milk on the retail shelf. I am just trying to get my head around your inference. If you are saying dollar-a-litre milk has now set the prices that Mr Barry Irvin sets for Bega, I am not sure we can make that—

Senator XENOPHON: No, I did not say that.

Mr Jenkins : I am just trying to understand the question.

Senator XENOPHON: I am sorry if I have not asked the question sufficiently clearly. It is this: do you consider that the dollar-a-litre milk, unleashed on the market on Australia Day 2011 by Coles and then followed by others, has impacted overall on the price that dairy farmers receive for their milk?

Mr Jenkins : Yes. I am not talking about just the drinking milk, but it has, to some extent, devalued the dairy cabinet for the tenders—

Senator XENOPHON: By how much?

Mr Jenkins : I would have to do the research and get back to you on that. I am sure Dairy Australia and ADF have those figures, which we can table. But that is the diary cabinet—not just the milk pricing and the other prices. The dairy cabinet has devalued since 2011.

Senator XENOPHON: But your association is resigned to accepting that dollar-a-litre milk is here to stay?

Mr Jenkins : We have never said that. We have always, fundamentally, said we want to get rid of dollar-a-litre milk. We have strongly campaigned for that from 2011.

Senator XENOPHON: So how would you get rid of it with a policy lever? Would you say that a levy be placed, that it be outlawed, that you strengthen competition laws or that you have a stronger predatory pricing test?

Mr Jenkins : Those are some great things. I think we need to extensively research that. We put faith in you, the elected members of parliament, to look over that on our behalf, but at the same time we do—

Senator XENOPHON: And we put faith—

Mr Jenkins : But at the same time we have an ACCC inquiry initiated by Scott Morrison, the Treasurer, which is now going to unpack, for the first time in the history of the dairy industry, all the margins along the supply chain. I think that is really critical for our industry moving forward. We place a lot of importance on that, and that will answer some of your questions—where are those margins sitting and where have they gone?

CHAIR: Just for the record, Mr Delahunty, the analysis that you have provided is probably different for Queensland than it is for Victoria, because I would imagine that your counterparts in Queensland would be saying the dollar-a-litre milk phenomenon has had a far more significant impact on prices that farmers received. Do you agree with that?

Mr Delahunty : That is correct; it is absolutely different.

Senator XENOPHON: Just as you place faith in us, we place faith in peak representative bodies such as yours to tell us what you think your members want. What percentage of dairy farmers do you represent?

Mr Delahunty : I said that before—it was 40 per cent.

Senator XENOPHON: That is a significant number. Have you surveyed your members as to how many are viable, how many are going backwards, how many are struggling to survive in recent times with the problems there have been with the collapse in the world milk price as well as the dollar-a-litre milk?

Mr Jenkins : To be honest, we have not surveyed the members right across the board in terms of that dynamic.

Senator XENOPHON: Have you surveyed them in the last five years?

Mr Jenkins : I think fundamentally most of our members are quite viable, and I think that is the information—

Senator XENOPHON: No, that is not the question. Have you surveyed your members?

Mr Jenkins : No, we have not surveyed them to ask them what their financials are.

Mr Delahunty : The industry regularly surveys dairy farmers through Dairy Australia programs, and we obviously tap into that information.

Senator XENOPHON: So it has been done, anyway. Do you know from those surveys what percentage of your members are experiencing financial stress, are considering exiting the industry and are having to borrow more money—their balance sheets are going backwards? Can you take that on notice?

Mr Jenkins : If you look at the levy payment that is paid to us it is a voluntary levy, and I made that point when you were maybe out of the room. It is a voluntary organisation. When you look at the levy payment and the milk that has come through our organisation over the last five years, it has not dropped. The levy payment and everything has stayed the same, which sort of suggests that we have not lost the membership and we have not lost the milk to an exit. Fundamentally there are always a certain number of retirements. Dairy Australia has retirements. Each factory has retirements each year.

Senator XENOPHON: But that is not quite what I asked. You do not really know how many of your members are facing financial distress, are considering exiting and, when they reach retirement, are not in a position to sell their farm because it just is not making a reasonable rate of return for the work they put into it.

Mr Delahunty : We know as a result of what happened last year that pretty much every dairy farm business is financially stressed.

Senator XENOPHON: That is not as a result of a survey but as a result of common knowledge in the industry.

Mr Delahunty : That is a result of hundreds and hundreds of phone calls, emails and other forms of contact.

Senator XENOPHON: So from the feedback from your members?

Mr Delahunty : Yes.

Mr Jenkins : Definitely. Just trying to get to the point of your question, there is no doubt there is a certain amount of hardship out there through our membership base. There is nothing worse than taking phone calls on a Sunday night or a Monday morning with people crying and saying, 'My milk price has been dropped to $1.91 and this is going to really put us to the wall,' particularly when they are a generational farmer that has just handed over the reins to a younger generation coming through. That is where I get back to my leading statement: it is up to all of us to make sure we put a stop to what happened last year so that that does not happen again and we can move forward.

Senator XENOPHON: Sorry, we are running out of time, but you want to put a stop to what happened last year. How do you put a stop to it? Do you have a mandatory code of conduct or a voluntary code of conduct?

Mr Jenkins : We have a voluntary code of conduct. We went through that before. We also have a regulation in place, regulating bodies from ACCC and ASIC, to remove people that made decisions last year that fundamentally hit the whole supply base. We have all done our company directors course and we know there is certain governance and things in place that may need to be unpacked to make sure that that does not happen again.

Senator XENOPHON: The evidence given yesterday by Mr Helou was that ASIC has not even interviewed him yet.

Mr Jenkins : Yes, and it is very, very disappointing. Our organisation is very, very disappointed.

Senator XENOPHON: Will you let ASIC know about your concerns?

Mr Jenkins : We have written to both of them on 1 January this year to say we are disappointed there has been no outcome from the start of the investigations in April last year.

Senator XENOPHON: I would not mind if you could have a look at Mr Weinert's submission and give your comments on it. He has basically set out that he thinks there is market failure. I would like your comprehensive response to that. I would be grateful for that.

Mr Jenkins : Good, I appreciate that—that is really good.

Senator RICE: I wanted to follow up on the dollar-a-litre milk and the farmers' return. We know that, clearly with respect to the relationship between the processor and the retailer, it is being sold to them at very, very slim margins. In relation to the return to the farmer, if a farmer is supplying milk that is going into the dollar-a-litre milk, are they generally getting less than a farmer that is supplying milk that is going into a branded milk product?

Mr Jenkins : That is a really interesting question, but it depends on who has the fresh milk contract, and whether they are also supplying a branded contract as well. It is really hard to designate whether a tanker of milk goes out of the farm and lands in a silo. I am sure there is traceability, but how do you know that silo goes into that part of the milk, and that part of the milk goes into the branded product? It is a blended price. The farm gate price, not this year's price but let's say it is 50 cents a litre, that is what the farmer gets. The return then is on the corporate or the cooperative to then extract the rest out of the market, which may be to a dollar, so they are getting 50 cents, or they are getting it into a branded product and they are extracting $1.50.

Senator RICE: So in terms of people wanting to help farmers and to make sure that they are getting more money at their farm gate—I tweeted this morning about $1-a-litre milk, and somebody replied to me, 'Is there anything we can do to help?' There are lot of people feeling that if they are buying branded milk products it is going to be helping the farmer, but what you are saying is that that is not necessarily the case.

Mr Jenkins : But the branded milk returns more, as I said, it is a higher value product, and if you have a higher value product, as you heard from Mr Irvin this morning, when he makes a profit in his business, it also then underpins the investment strategy going through the industry, and that makes more efficiency, getting more milk through and they are returning a better price.

Senator RICE: So over a longer term you would think that that should enable the processes to return more to the farmers?

Mr Jenkins : Definitely.

Senator RICE: But what, in short, in terms of the advice to the person who responded to my tweet this morning, would you advise to the consumer that they can do to help farmers who are struggling at the moment?

Mr Jenkins : As I said, it is not upon us to work out what their socioeconomic ability is. If they can drink and eat as much dairy as they possibly can, that would be fantastic. If they can move to a branded product and have that opportunity, that would be really good, too.

Senator RICE: Thank you.

CHAIR: Are there any more questions?

Senator XENOPHON: I think there is a deadline to the secretariat, is it 8 February?

CHAIR: For questions on notice?

Senator XENOPHON: For that question on notice about your considered view of Mr Weinert's submission, which is on the website.

Mr Jenkins : I would like to thank all of you very much and I appreciate coming to present to you.

CHAIR: Thank you Mr Jenkins, thank you Mr Delahunty. That concludes our hearing for today. Thank you very much to all of those who have appeared in front of this committee.

Committee adjourned at 15 : 32