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Extension of underwriting arrangements for dairy industry for 1977/78 season



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L J /a CIVICD I D I

W A THE MINISTER FOR _ *R| \ / PRIMARY INDUSTRY 1THE RT. HON. IAN SINCLAIR M.P. CANBERRA

STATEMENT BY

2 March, 1978.

EXTESION OF THE UNDERWRITING ARRANGEMENTS FOR THE DAIRY INDUSTRY FOR THE 1977/78 SEASON ~

The Minister for Primary Industry, Mr. Ian Sinclair, today

announced the Government's decision to increase the level of

underwriting-for butter and cheese for the six months period

from 1 January, 1978 to 30 June, 1978.

The increase follows a review of the dairy industry underwriting .

arrangements which the Government undertook to make following

the Federal election.

Mr. Sinclair said the level of underwriting would also be

increased for skim milk powder and casein subject to agreement

by State Governments. . . . - . .

In addition, whole milk powder would be included in underwriting .

arrangements for the second half of the 1977/78 season. .

In ■ normal·circumstances the levels' of underwriting should allow

efficient manufacturers to pay their suppliers around 75 cents

per pound butterfat ($1.65/kg) at the farm gate, Mr. Sinclair said.

Whether or not manufacturers can reach this level of pay rate

will depend, however, on a number of variable factors such as

their level of throughput, overhead costs, and cartage.

"There is very real justification to maintain adequate under- .

writing levels to protect the incomes of farmers during this

period of transition in dairy marketing arrangements", he said,

"The Government believes the increases should enable the dairy

.industry to maintain reasonable returns at a time when seasons

and loss of markets have so prejudiced farming opportunities."

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Mr. Sinclair said that the Commonwealth Government had agreed

to underwrite the equalised returns from domestic and export

sales for butter and cheese for the second six months period of

the 1977/78 season under the Stage I marketing arrangements at

$1,240 per tonne and $955 per tonne respectively.

The Government also proposed to the State Governments that skim

milk powder be underwritten at $420 per tonne and casein at

$1,090 per tonne, with the cost of underwriting to be shared by

the Commonwealth with the States on a two-to-one dollar basis.

Wholemilk powder would -be underwritten at $715 per tonne for

the second six months period of the 1977/78 season.

As wholemilk powder was not being pooled under the Stage I

marketing arrangements, the Government's underwriting commitment

would be based on the underwritten figure of $715 per tonne, and

the Australian Dairy Corporation's minimum export price, '

currently $700 per tonne f.o.b. bulk basis„ Underwriting would

be restricted to wholemilk powder exports ex January/June 1978

production. . .

Mr. Sinclair said the dairy industry continued to face severe

economic pressures. Export returns remain depressed, .

particularly for butter, while there Was a continued .upward .

trend in production costs. . .

Drought conditions had also reduced milk output in many major

dairying areas.

Mr.. Sinclair said that .in conducting its review of. the current .

■underwriting arrangements, the Government had taken into

consideration representations made by the-Australian Dairy

Farmers' Federation and other industry bodies.

The level of Government underwriting was now pitched at a high .

level in relation to the domestic prices obtaining for the

respective products.

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The full significance of the Government's underwriting

commitment, however, did not seem to be fully appreciated by

some sections of the industry„ .

This was because the level of underwriting was expressed in

terms of a net pool return for the respective products, whereas

the Government's actual commitment also included costs associated

with each pool, such as the payment of special allowances for

storage, transport, and administrative costs.

In the case of butter, while the new underwriting figure was .

set at $1,240 per tonne the actual Government underwriting .

commitment for the second six months period of the 19 77/78 . .

season would be around $1,320 per tonne. .

Mr. Sinclair said that the Government's decision to'underwrite

at the new levels for;the six months period ending 30 June, 1978

would provide a measure of income stability to dairy farmers

until a greater degree of stability was achieved under the

staged marketing arrangements for the dairy industry.