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Thursday, 14 May 1970

Mr ANTHONY (Richmond) (Minister for Primary Industry) - I move:

That the Bill be now read a second time.

This Bill will give effect to the Government's intention to make available up to $25m over a period of 4 years for implementation of the marginal dairy farms reconstruction scheme. Tabled with the Bill is an agreement between the Commonwealth Government and the Government of Western Australia which will come into force immediately this Bill is enacted by Parliament. The way in which the Bill and the agreement have been drawn makes it desirable that they be read in conjunction with each other. The scheme as outlined in this Bill had its origin when the Australian Dairy Industry Council in October 1966 submitted a number of proposals to the Commonwealth Government in connection with the renewal of the industry stabilisation plan for the 5 years from 1st July 1967. The Dairy Industry Council recommended that, in addition to maintaining the already existing measures of Government support to the industry, the Federal Government should provide funds for distribution in conjunction with State governments, as combined grants and loans to provide for the reconstruction of dairy farm units which were uneconomic because of size.

The Government accepted this industry recommendation and formulated the present reconstruction plan. In its essential features, this plan is in line with the recommendation by the Industry Council. The world situation in dairying shows an overwhelming pattern of production surpluses. Butter stocks in the 10 major producing countries have risen for the fifth year in succession. The European Economic Community alone has a butter surplus of around 300,000 tons or little short of half the world's annual trade in butter. The Six have accumulated this surplus through beggar-my-neighbour policies such as high export subsidies, despite continued representations by Australia and other countries for moderation.

Britain remains the major market for Australian dairy products. But the British market is limited by quotas, requiring restraint to be exercised by Australia, New Zealand and other suppliers. Even that trade is in jeopardy should Britain join the European Economic Community without first ensuring that there are adequate safeguards for its traditional suppliers. The quotas may have resulted in a reasonably stable price for butter on the British market, but returns from that market can scarcely be called remunerative. In Australia itself, the consumption of fats and oils per person has been declining. The consumption of butterfat per person has been falling even faster. Consumption of fluid milk per head is static in most States. Competition from margarine and other spreads would create chaotic conditions but for State-imposed restrictions.

The sum total of a limited home market and an over-supplied world market means that, despite the continuation of the Government subvention of $27m per annum for butter and cheese, the equalised return to producers declined from 47.1c per lb butterfat in 1964-65 to an estimated 41.3c for the current year. Over the same period costs have risen by 16i% according to the Bureau of Agricultural Economics index of prices paid by farmers. The net farm income of producers in the dairying industry has suffered severely.

In attempting to counteract this situation, farmers have made strenuous efforts to improve productivity. No matter how measured, the results are striking. In real terms production per cow or per acre or per man or per dollar have all gone up. The structure of the dairy industry has changed substantially over the last 10 or 15 years. It is clear that the producer bas accepted the productivity challenge posed by rising costs and advancing technology. Farmers who have been able to find capital to invest or reinvest in their farms and those who have been in the fore-front of productivity improvements have been able to maintain or even better their income position. However there are a substantial number of dairy farmers who due to inadequate farm size or capital limitation or to a variety of other intractable problems, have not been able to keep pace with the changes that are going on in the industry. The economic examination of the dairy industry conducted by the Bureau of Agricultural Economics in 1964 shows that the average net farm income throughout the industry in Australia over the period surveyed - 1961-62 to 1963-64 - was $2,400. At the time, some 55% of all dairy farmers earned a net farm income of less than $2,000 per annum. In the manufacturing sector of the industry, that is among those producers who do not have access to the higher priced fluid milk market, the situation was even worse. There is no evidence of improvement in this position in the period since the survey was carried out.

The industry's problems are aggravated by the fact that there are concentrations of low income producers in certain dairying regions, notably in south-eastern Queensland, northern New South Wales and the south-west of Western Australia, and to a lesser extent, in the south-east of South Australia. There is thus a regional problem as well as an industry problem. The whole economy of these regions is adversely affected. In south-east Queensland and northern New South Wales, the size of farms established late last century or early this century is no longer sufficient under today's conditions. In Western Australia, development has been retarded also by the high cost of clearing land.

Dairy farmers with small holdings have no cushion of wealth to protect themselves from the impact of the drastic changes through which the industry is going, nor in most cases can they offer sufficient security to enable the farmer to borrow for farm development. Even with the greatest of effort, their holdings are no longer big enough to maintain an adequate standard of living acceptable in the Australian community. Farmers are being forced out of the industry and in many cases, these men have had to sell at sacrifice prices. Faced with this situation there are a number of courses open to the Government and the industry. One way would be to allow economic strangulation to take further toll of marginal dairy farmers. This course would be intolerable. Another way that some have advocated is to give more subsidy, but this would merely produce a situation where more of the increase in subsidy would go to those whose incomes are already adequate and very little to those producers who really need assistance. The third way is to adopt arrangements specifically designed to alleviate the marginal farm problem.

The States where regional low income problems exist have not been idle. In 1956 Western Australia introduced a dairy farm improvement scheme, followed later by its dairy farm consolidation plan which is still operating. Since the inception of these arrangements, the Western Australian Government has provided rather more than $lm to assist producers in that State. Similarly New South Wales in 1963 introduced a farm build-up scheme. That scheme is available to all rural industries in New South Wales. In respect of dairy farms, the Government of that State has spent about S1.6m for the amalgamation of properties. Queensland also has a number of measures in force which more or less directly benefit the dairy industry, although there is not any dairy reconstruction plan as such operated by that State Government, nor by any State Government other than the 2 that I have mentioned.

The scheme now offered by the Commonwealth is obviously of much greater magnitude with correspondingly greater potential for dealing with the low income problem that exists in the dairy industry. The objectives of the Commonwealth scheme are twofold: To enable low income dairy farmers who voluntarily wish to do so, to leave the industry and to receive a fair price for their land and improvements; and, after the writing-off of redundant assets, to make the land and useful improvements available to other farmers so as to build up their properties to a viable family farm level and, where possible, diversifying the pattern of land use. The States have been asked to work with the Commonwealth in the implementation of the scheme with moneys provided by the Commonwealth.

Essentially, the Bill now before the House empowers the making of agreements with States for the operation of the scheme. The Bill specifies certain features that are to be incorporated in any such agreement. First and foremost, there is the need to define a marginal dairy farm for the purposes of the scheme. Here the Bill and the agreement apply simultaneously. Taking them together, a marginal dairy farm is denned as having the following characteristics:

1.   It must, of course, be a rural property.

2.   It must have at least some minimum number of cows. It is proposed to use as a minimum 20 lactating cows.. This eliminates those farmers who are merely running a small number of cows as a side-line. It is also the figure that was used as a lower limit in defining a dairy farm for the purposes of the Bureau of Agricultural Economics survey.

3.   At least half of the gross income of the farm must be derived from the production of milk or cream sold at the manufacturing price. I will have a word more to say about this in a moment.

4.   In the opinion of the State authority operating the scheme, the farm, if used wholly for dairying or purposes incidental to dairying, is not reasonably capable of producing to a level agreed between the Commonwealth and the State. In order to provide a fairly objective standard, the agreement with Western Australia lays down that this level will be a production of 12,000 lb of butterfat on average per annum. The Commonwealth is prepared within reason to adopt in respect of different States, a standard which may vary from that specified for Western Australia. This is a simple recognition of the fact that the production environment differs in the different States. ' The Commonwealth would be guided largely by the advice of the State itself. In addition, in order to be able to meet changing circumstances in any State or changing cost-price relationships within the industry, provision is made in both the Bill and the Agreement to enable this standard to be amended from time to time with the consent of the Commonwealth and the State concerned.

These then are the 4 characteristics that define a marginal dairy farm. For the purposes of the scheme, a marginal dairy farm is a rural property running more than 20 lactating cows, and with not less than half the gross income derived from the production of milk or cream valued at the manufactured price, but being one that has an overall production insufficient to provide a reasonable level of income. 1 have already mentioned that in requiring that such a farm have at least half its gross income coming from the sale of milk or cream the Government has laid down that this will be milk or cream valued al the manufacturing price. There is very good reason for this requirement. The scheme is designed essentially to assist the low income farmer in the manufacturing sector of the dairy industry. It is this sector which has been most severely hit by the combination of the low level of export prices for dairy products and rising costs. By contrast, the effects of the cost price squeeze have tended to be alleviated for the whole milk sector by the adjustment of milk prices from time to time. The Bureau of Agricultural Economics survey shows that the average Australian net farm income in the manufacturing sector was S2.001. In the whole milk sector it was just on $3,000. In every State other than Queensland, there is a significantly higher proportion of low income farmers in the manufacturing sector than in the whole milk sector. This is only to be expected when it is recognised that milk going to the fluid milk market is paid at approximately twice the price of milk for manufacturing purposes.

The adverse situation of farmers in the manufacturing sector is made even worse by the policy that operates in New South Wales whereby, in order to try to maintain their quota entitlements, dairy farmers in the milk zone are virtually compelled to produce excess milk for which the only outlet is manufactured dairy products. This excess milk swells the oversupply situation for butterfat, to the detriment of producers outside the milk zone. The contrasting fortunes of the two sectors of the industry have meant that the small farmer in the fluid milk sector who wanted to quit the industry has, as a general rule, been able to do so without loss. Entitlement io quota in the New South Wales milk zone gives the quota holder an unearned premium wilh a market value at present of $80 to $150 per gallon depending upon location. In other words, a relatively small quota, say 30 gallons, will produce a premium well in excess of a year's net farm income for an average dairy farmer outside of the milk zone, in the manufacturing sector, by contrast, departure from the industry has commonly involved serious financial loss.

There is, however, 1 important po:nt that must be stressed. Low income producers within the fluid milk sector are eligible to participate in the marginal dairy farms reconstruction scheme. The possession of a milk quota does not exclude them from participation, nor does mere geographical location. Such dairy farmers will b; subject to exactly the same tests of eligibility as farmers in the manufacturing sector. The only other condition that an applicant must meet who wishes voluntarily to offer his land under the scheme is that he should have been operating the holding for a period of not less than 2 years. In other words he must be a bona fide dairy farmer. The agreement provides that in exceptional cases, such as illness or disability, this condition could be waived. The agreement also provides that if experience shows that some other qualifying period is warranted, the present stipulation can be altered by mutual ministerial consent.

The next feature mentioned in the Bill is that the agreement must include provision that the outgoing man will receive current market value for his land and structural improvements. The State instrumentality which operates the scheme will not be required to buy the moveable plant or the herd. The outgoing farmer will be able to sell his livestock, machinery and plant on his own account. By ensuring that the man who wishes voluntarily to leave the industry will receive current market value, the scheme will protect him against having to sell his farm at a sacrifice. The outgoing man will thus receive fair value for the capital and effort he has invested over the years.

It has been suggested to me that there should also be included a retraining scheme for the farmers who decide to leave the industry. At present the Commonwealth offers rural retraining for national servicemen. There is sound justification for providing this facility for young men whose careers have been interrupted by the need to undertake service in the defence forces. It is by no means clear that such an additional benefit should be offered to men who are changing civilian employment. Australians, and particularly Australian farmers, have always taken some measure of pride in their ability to turn their hands to whatever is necessary. At the same time the Government is currently giving attention to the question of vocational training, especially in regard to industrial trade training, and I am willing to look at this question again as experience accrues in the operation of the marginal dairy farms reconstruction scheme.

A further feature stipulated in the Bill is that land will not be disposed of for use primarily for dairying unless it is to be so used as part of a rural property that constitutes an economic unit. In the agreement, the minimum level specified for an economic unit exceeds the maximum level for a marginal dairy farm by some significant amount - in the case of Western Australia, 25%. The purpose of this differential is to avoid the risk of bult up farms falling back into the marginal category under the continuing cost-price trends that are pressing on the dairy industry. The maximum level for a marginal dairy farm in Western Aus tralia is, as I have already said, the equivalent of 12,000 lb of butterfat on average per annum. So an economic unit in that State for the purposes of the scheme will be one that produces annually the equivalent of at least 15,000 lb of butterfat.

The Bill and the Agreement also make provision that, where necessary, the State instrumentality may acquire farms which are larger than a marginal farm, but only if both the State Minister and Commonwealth Minister are satisfied that good reason prevails. I would like to make this matter clear. Where a farm fulfils the definition of a marginal dairy farm, the State instrumentality will have full authority to acquire it should it be offered. Where a farm is producing more than the maximum level set in the State concerned for a marginal dairy farm but less than the minimum of an economic unit, the State instrumentality will be able to acquire it provided the Commonwealth and State Ministers give consent. Where the property is already above the base level for an economic unit, it can be acquired, again with the consent of the State and Commonwealth Ministers, but this consent would be given only in most exceptional circumstances. There is one important observation to be made in this connection. The Agreement sets out clearly that the State authority is not compelled to acquire any particular marginal dairy farm. Since the day to day and case by case responsibilities will be entrusted to the State authorities, they have to be given discretion in respect of the acquisition of marginal dairy farms. The State might wish, for example, to have a suitable purchaser or lessor in prospect.

I now turn to a most important matter. In making the land available for build-up purposes, the disposal will be made so as to encourage the most practicable and economic use of land with a view to achieving, so far as is consistent with such land use, the diversification of production. The Commonwealth has stated from the inception of its proposals for a dairy farm reconstruction scheme that the twin aims are amalgamation and diversification. There will be instances where the most practicable and economic use of land will be for it to continue in dairying. There will be other cases where it makes sense to divert the land to other forms of rural production altogether. There will be cases where the built-up farms will be suited to mixed farming. There will be other instances, such as in hill country, where probably the best thing that could be done with the land would be to turn it to forestry. The Bill and the Agreement are so drawn that all of these possibilities are catered for.

Another feature of the Bill is that in disposing of land, the man whose property is being built-up will be able to obtain that land at current market value taking into account the nature of the proposed land use and the system of tenure. It is intended that the farmer who obtains built-up land will only need to pay for those structural improvements that are useful to him. Redundant assets will be written off at Commonwealth expense less any residual value. This requirement that the in-coming farmer will not need to pay for redundant assets is a unique characteristic of the marginal dairy farms reconstruction scheme. By writing off these superfluous assets, the possibility of the in-coming man being saddled with a useless burden of debt is avoided. As far as the land and the useful assets are concerned, the farmer who takes them up will have the opportunity to pay for them over a spread period. The exact terms and conditions on which repayment will be made will be a matter that in each State the State authority will determine. It will be appreciated that there are two aspects to the scheme. There is a CommonwealthState relationship and there is the relationship between the State or State authority and the producers.

I have already covered most of the matters of consequence on the latter aspect. To summarise, a marginal dairy farmer wishing to leave the industry will offer his land to the Authority in his State and if approved will receive payment in full as soon as the transaction is completed. The authority will then make the land available in whole or part to another farmer together with those improvements that the farmer indicates will be useful. The land and useful improvements will be sold to him at a price based on current market values in relation to the proposed use of the land. Before making the land available, the authority will ensure that after amalgamation the built-up property will form an economic unit. The man whose property is built-up will receive time to pay, the terms in respect of repayments being those specified by the State authority. The authority will also ensure that, as long as the farmer whose land is built-up owes money to the authority, there will be an undertaking given against fragmentation of the property.

The ability of the State to extend credit on reasonable terms is dependant on the extent to which the State has to make repayment to the Commonwealth. The Bill lays down that, of the financial assistance to be made available by the Commonwealth, the State will only have to repay half, and that over a period of up to 25 years. In the Agreement there is an option that the State can postpone making repayment of capital to the Commonwealth for an initial period of up to 2 years if it so desires. Thus, by the time repayments are to be made to the Commonwealth, the State can itself be receiving moneys from farmers whose properties have been built-up. In effect the Commonwealth is asking States to cooperate, at no cost to themselves, for the benefit of farmers and of the dairy industry as a whole.

Interest will bc charged on that half of the money that is repayable to the Commonwealth. A fixed rate of 6% per annum will apply on the funds repayable in respect of drawings and advances made during the four years of the current agreement. This rate is less than the long term bond rate of interest at the present time. Setting a lower rate of interest for the Scheme is consistent with the action taken by the Government to avoid the recent increase in bank interest rates from being applied to rural producers. The particular rate of interest that producers on built-up farms will be charged by the State authority is a matter for each State separately to determine. The Commonwealth's offer is thus a generous one. The State will only have to repvy half of the money and that over a lengthy period and at a favourable rate of interest. The grant portion will be more than sufficient to cover the write-off of redundant assets and any reduction in the value of land because of change in the pattern of land use.

Also, in both the Bill and the Agreement, the Commonwealth has given the States an assurance against any overall loss falling on State revenue as a result of circumstances beyond the control of the State, and which turn out to be disadvantageous compared with past experience and normal expectation as to factors that affect farmers' incomes. In return, the State would agree to operate the scheme in such a way that, taking into account its experience with other schemes of an analogous nature, and the normal expectations that I have just mentioned, the amounts recovered could be reasonably expected to equal the State's costs of administration and payment of interest and capital to the Commonwealth. This is an equitable bargain between the Commonwealth and States. It means that should the industry suffer a serious setback through forces beyond the control of the State, the State can expect to be protected against any overall loss falling on it by virtue of its co-operation in the Scheme.

The total sum that the Commonwealth, is prepared to make available over a 4 year period is $2Sm. This sum is not divided up beforehand among States in any set amounts, nor could this be done, since, as I have already stressed, the scheme is a voluntary one. It is thus most difficult for the Commonwealth or any State to predict the rate at which farmers will come forward to offer their land. Instead, the Commonwealth will make the money available as needed by the States up to the total that Parliament is asked to appropriate, namely $25m. The Commonwealth will also make an advance or advances as needed, to any State that requests that this be done, in order that the State will always have funds in hand to operate the Scheme.

The existing schemes in New South Wales and Western Australia have helped relieve the low income problem in those States. In recognition of this, the Commonwealth is willing to make available supplementary grants to these 2 States from within the total appropriation. Western Australia has requested a grant of $35,000 a year to supplement the moneys that the State is providing through its Dairy Farm Consolidation Plan and this annual sum is written into the Agreement. In the case of New South Wales, if that State seeks a supplementary grant it could make possible the writing off of redundant assets, a feature not presently incorporated in the State scheme. The Commonwealth and State schemes would then be virtually identical as far as the build-up of dairy farms is concerned. The low income problem is not confined however to New South Wales and Western Australia. It is a problem that affects all States. While speaking of the financial assistance which the Commonwealth will accord to the States to operate this scheme, I want to make it quite plain, beyond any doubt, that the period of 4 years for which the $25m is available will be a common period applying to all States, commencing from the first date on which an agreement is signed with any cooperating State. Let me illustrate what I have just said. Should this Bill be enacted into law and receive royal assent on, say, 30th June 1970, and the agreement with Western Australia be signed the same day, then the 4 years will end on 30th June 1974, and no further money will be available to any State out of the present $25m after 30th June 1974, unless it relates to expenditure by a State within that period.

Clearly the task will not be finished by that date and at an appropriate time the. Government will consider, in the light of the experience gained in the first few years, what further action it should take. In addition, it is no secret that the Government has received and is considering representations for the wider application of the principles underlying the dairy reconstruction scheme, in order to assist other rural industries that are in difficulties. However, it would be unrealistic for the Government to make any decision on these further representations until the Commonwealth has been assured of the co-operation of the States in the reconstruction of the dairy industry.

Mr Duthie - How many have agreed so far?

Mr ANTHONY - Only Western Australia. The arrangements embodied in this Bill and the accompanying agreement represent the full extent of the Commonwealth's offer. At the moment, States other than Western Australia have not yet given their co-operation. In fairness, 1 must say that the Premiers have indicated their support for the principles of the marginal dairy farms reconstruction scheme. What is needed however, is more than in principle support. During the 2 years that the scheme has been under negotiation, over 5,000 dairy farmers have ceased to operate. There is no valid reason, particularly in the light of the assurance that the States have received against the possibility of losses due to factors beyond their control, why the benefits of the scheme should be delayed or denied to the low income sector.

Mr Speaker,this scheme is one that has been sought . by the industry. More than half the dairy farmers in Australia could be eligible to participate. It will improve the health of the industry as a whole. At the same time it will directly assist that sector of the industry whose living standards have been and still are unacceptably low in relation to the high standard of living enjoyed by most people in Australia. It will help alleviate regional and social problems. Above all, this scheme will add strength to the family farms that are the backbone of the dairy industry. I commend the Bill to the House.

Debate (on motion by Dr Patterson) adjourned.

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