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Wednesday, 15 May 1957

Mr McMAHON (Lowe) (Minister for Primary Industry) . - by leave - I move -

That the bill be now read a second time.

Shortly after the Government came into office in December, 1949, it put into effect the first phase of a promise made when in Opposition, that, subject to the approval of the dairy industry and the State governments, it would ensure stabilization in the dairy industry for a period of at least ten years. The arrangement which existed under the Chifley Government was extended and greater benefits to the dairy farmer generally were agreed to.

In 1952 a five-year stabilization scheme for this industry was introduced. As history has shown, it has given a considerable degree of security and prosperity. Over the period of seven and a half years since this Government took office the dairy industry subsidy has totalled £112,000,000. A considerable portion of this has benefited the taxpayer in the form of a consumer subsidy.

The present stabilization scheme, and the Dairying Industry Act of 1952 which gave legal effect to the scheme, are due to terminate on 30th June next. The time has come to introduce to Parliament the necessary legislation to implement a new stabilization scheme for the five-year period commencing 1st July this year. That is the purpose of this bill.

The House knows the important place that the dairying industry occupies in the Australian economy. I have before me some very interesting figures which show how firmly established the industry really is. For example, total investment in the industry is estimated at between £600,000,000 and £750,000,000. Exports of milk products are valued each year at about £40,000,000. The average value, including the Commonwealth subsidy, of the production of whole milk for all purposes in each of the last three years was £157,000,000 and the value of the 5,000,000 dairy cattle in this country would be no less than £125,000,000.

Commercial dairy farms number 66,000, employing just over 110,000 persons. A further 10,000 people are employed in factories manufacturing butter and other milk products, and 150,000 milking machine stands valued at about £7,500,000 are installed in dairy farms. In addition, many thousands of Australians living in cities and towns in dairying areas are indirectly dependent for their livelihood on the wellbeing of the industry. It is no wonder, therefore, that this Government is anxious to maintain stability in the dairying community.

The new scheme has been thoroughly discussed with the dairy industry leaders, and the State governments have agreed to continue the arrangement, which has been operating for the past five years, whereby the Commonwealth determines the exfactory prices for butter and cheese consumed in Australia. In this, as in the case of wheat stabilization, or any other similar plan which might be devised, the cooperation of the State governments is essential.

The 1952 stabilization scheme is now drawing to a successful close, and I can state without hesitation that during its operation the dairy industry has had a period of considerable prosperity. During the first four years dairy-farmers' incomes from butter sales showed an increase of 17 per cent, on a Commonwealth basis - from £71,000,000 in 1952-53 to £83,000,000 in 1955-56. Factory butter production increased from 163,500 tons to 205,800 tons in 1955-56 - a lift of 26 per cent. - and production this season, which has been retarded by adverse weather conditions, will still be in the vicinity of 190,000 tons. Efficiency in the industry itself has shown a marked improvement, particularly on the farms.

It is only natural, then, that any scheme devised for the next five years should not depart materially from the present scheme, which has proved so successful. Therefore, the proposed scheme is very similar to, and continues all the best features of, the present arrangement. These principles include, first, a Commonwealth price guarantee for butter and cheese for five years from 1st July, 1957; secondly, the guarantee to cover all butter and cheese consumed in Australia, plus 20 per cent, of that amount; and thirdly, the method of determining the level of returns to dairy-farmers for butter and cheese consumed locally, plus 20 per cent, of that quantity.

There is an important reason why the Commonwealth should not be committed to guarantee a return based upon costs on a tonnage unlimited. It would be contrary to sound principles of public finance to commit the Treasury to guarantee, without limit, that one industry be assured a profitable return on an unlimited volume of production, regardless of the circumstances of all other industries.

It will be noted that the government guarantee does not necessarily assure that all butter and cheese exported will be covered by the guarantee. This year, for example, if butter production amounts to 190,000 tons and local sales to 120,000 tons the guaranteed quantity would be 144,000 tons, or about 75 per cent, of total production.

In the case of wheat, we have always stated a limit to the Commonwealth's guarantee and we continue to state a limit now for butter and cheese as we did in the 1952 scheme.

The subsidy for 1957-58 will be the same as that for 1956-57, namely £13,500,000. This subsidy, when passed on to the farmer by the factory, is at least 6d. per lb. commercialbutter basis on total production, and represents 14 per cent, to 15 per cent, of the dairy-farmers' actual pay cheque.

I come now to the new features of this scheme. They are as follows: -

On the recommendation of the Australian Dairy Produce Board and dairy industry representatives, the Government has included a clause in the bill which will enable the board to use the Dairy Industry Stabilization Fund for purposes such as research and sales promotion, which are approved by the Minister. The board will still be able to use the fund for the purpose originally intended, .namely for increasing returns on exports not covered by the guarantee. At the suggestion of the dairy industry leaders, the Government has agreed that any subsidy made available under the new scheme would be on the basis of a fixed amount in any dairying year. This will be determined by the Government before the commencement of each year.

This important decision means that deferred bounty payments can be made almost immediately after the season's close - probably in September or October - when actual production of butter and cheese for the season is known. Under the previous arrangement the precise subsidy commitment was not known until six or eight months later. I have also informed the industry that there will be no hard and fast rule that the subsidy must be reduced each year. When dealing with this question the Government will take into consideration all the circumstances.

Thirdly, the industry also requested that in the costing formula of the new scheme a standard of production be fixed for the period of the scheme instead of an annually adjusted figure equal to the average production for the previous five years. The industry argued that under the old arrangement the full benefits of increased efficiency from increased production went to the consumer, and that the proposed method would enable a sharing of the benefits between the producer and the consumer. The Government is sympathetic to this request but considers that the recommending of such a standard should be left to the independent costing authority. The Dairy Industry Investigation Committee has been requested therefore to submit a recommendation on this matter to the Government.

I think it is important to distinguish the essentials of a stabilization scheme such as the duration, guaranteed price and level of returns, from other matters which can be discussed annually. With the present financial help from the Government, the return from, and the production of butter in 1955- 56, constituted an all-time record. The unit return to the average dairy farmer of 46.6d. per lb. for commercial butter in 1954-55 was also an all-time record. Estimated income from 1956-57 production, which is only about 4J per cent, below the 1954-55 income, cannot be regarded as a compelling reason for a major reversal in subsidy policy. Some areas are facing difficulties mainly because of adverse weather and the Government is very sympathetic to dairy farmers in these areas. However, it will be appreciated that unseasonable conditions in isolated areas and reduced incomes cannot be overcome under stabilization alone because the basic fundamentals of a stabilization scheme are equalization of factories' returns and uniform bounty rates. Due to a drop in export butter prices during the past twelve months and adverse seasonal conditions in some dairying areas, combined with a necessarily conservative approach by the Commonwealth Dairy Produce Equalization Committee to the determination of interim equalization payments to factories, an impression might be created that equalization is not working as efficiently as it should, and that returns are not being passed on quickly enough to producers.

The Commonwealth Dairy Produce Equalization Committee, which determines the uniform equalization values to factories, plays a major part in stabilizing the industry. The level of payments to factories is decided entirely by this body. The important fact is that the producers must be paid for the milk and cream they supply to the factories months before the butter and cheese are sold. This can, of course, create misunderstandings, as payments are made in advance of sales and by instalments which are influenced by overseas prices at the time the butter is sold. The committee determines the initial interim' equalization values to operate from 1st July each year. These interim values are conservative because factories obviously must not pay out to the farmers more than they will eventually get back from sales. It has great responsibilities and by unsound decisions could present embarrassing problems to the factories and to farmers themselves and could greatly harm the whole industry.

The need for conservatism in fixing the interim values has intensified over the past two years since the termination of the United Kingdom bulk purchase contract in 1955. While the contract existed, the Equalization Committee was safe in authorizing interim payments based upon the export contract value. Consequently, the interim payment was very close to the final equalization value, and only small deferred payments were necessary.

The position has now changed dramatically. The committee is faced with determining initial payments on estimates of production and sales and overseas prices. The result is that the pre-war pattern has returned and farmers can now expect conservative initial interim payments at the commencement of the season, and substantial deferred payments when the season's production has all been sold.

For example, in the 1954-55 season, which was the last year of the United Kingdom contract, the initial interim payment to cream producers was 46.3d. per lb. commercial butter basis, and the deferred and final payment amounted to only a little over id. per lb. In respect of the 1955-56 season, the initial payment of 41. 5d. per lb. was built up by two payments during the season to 44. 6d., and it has been estimated that the final rate for the season will be about 45. 5d., or a margin of 4d. per lb. over the initial rate. In view of the many problems associated with the question of payments to factories I must say that the Equalization Committee has performed a difficult task in a very efficient manner.

There are many problems in connexion with production and marketing, both on the home and the export markets, which I am glad to say the industry is examining. Since the termination of the United Kingdom bulk purchase contract for butter and cheese in 1955, the advent of free trading conditions has brought many problems. Increased production and consequently greater exports have put the industry on its mettle to obtain the best returns possible for the Australian dairy-farmer. The Government is assisting wherever possible to expand sales of our dairy products. The highly successful publicity campaign in the United Kingdom, conducted by the Government in collaboration with the various marketing boards and other exporters to this market, is continuing. Our trade commissioners overseas are not wasting any opportunities. It is notable that the Australian Dairy Produce Board has sent a delegation to London to make an on the spot examination of our marketing system. The permanent head of the department is also overseas and he will participate in this investigation.

I have taken steps to convene a meeting of the Australian Agricultural Council which will be held as soon as possible after the return of the permanent head. It is proposed that this meeting will give particular attention to the present position of the dairying industry. The Agricultural Council, including as it does the Ministers for Agriculture of the six States of the Commonwealth, is concerned with production as well as marketing issues affecting our primary industries. The States have constitutional responsibility for production. Important as is stabilization to the welfare of the dairying industry, it is also necessary that production be soundly based and that the most be made of scientific and technical advances, not only on the farm but also in the factory processing the farmers' products. All these matters have direct or indirect bearing on the stabilization scheme which, when all is said and done, has the object of ensuring a reasonable return to the producer for his product. I believe the new scheme holds out a considerable measure of stability to this great industry, and I commend the bill.

Debate (on motion by Mr. Pollard) adjourned.

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