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Wednesday, 8 March 2000
Page: 14134

Mr ST CLAIR (12:10 PM) —It has been a pleasure to listen to the member for Paterson. I stand today in support of the Dairy Industry Adjustment Bill 2000. It is important to remember that this is an industry proposed and driven package of assistance, coupled with the need for systemic and simultaneous deregulation of the market milk sector to enable structural adjustment within the industry with the least possible disruption. The deregulation of the dairy industry refers to the ending of the states' regulatory intervention in domestic dairy markets—I repeat: the states' regulatory intervention in domestic dairy markets. The principal regulation is at the state level. At present the states regulation sets the farm gate prices for fresh drinking milk, which accounts for 19 per cent of production, with the balance going to manufacturing cheese, butter, milk powder and many other dairy products. Under these arrangements, farmers are guaranteed a price for milk used in the fresh milk market either through the use of quotas, in the case of New South Wales, Queensland and Western Australia, or through a premium pooling system which refers to the system used in Victoria, South Australia and Tasmania.

Maintenance of the state arrangements—remembering that there are Labor governments in the states of Queensland, New South Wales, Victoria and Tasmania—relies on all states having regulated markets. This regulated system has delivered stability of returns to the dairy farm sector, assisted restructuring and allowed processes to develop international competitiveness. But this system has now become less effective in some states, particularly in Victoria. This is due to changes the dairy industry has faced over the last 25 years. These changes include the decrease in the number of dairy farms in Australia by 45 per cent in the last 25 years, from around 30,000 to fewer than 13,500 today, although on-farm employment has increased. Farms are larger. The average herd size has doubled to 150 cows and production has increased 50 per cent to more than 10 billion litres. However, the regulation that the state governments have introduced does not save farms. The number has fallen by 18 per cent since 1990. Lower farm numbers are a direct response to commercial pressures, and the trend to fewer farms will continue regardless of whether regulation stays or goes. While farm numbers have decreased, average milk yield per cow in the last 25 years has increased by 42 per cent to almost 4,750 litres.

In saying this, the Australian dairy industry is an outstanding success story. The dairy industry today is one of the most successful and profitable segments of Australia's rural sector. In value added terms, it is Australia's largest rural industry, bigger than wheat and wool, and employs over 60,000 people. Dairy is a success story because of the dramatic changes, as I mentioned before, that have been made by the industry in the last 10 to 25 years. Producers and manufacturers recognised that a sustainable future lay in exports. The Australian dairy industry has an annual turnover of $7 billion and earns the nation in excess of $2 billion in export terms. Australia is now a world leader in the dairy market with 12 per cent of the trade, ranking third behind the European Union, on 38 per cent, and New Zealand, on 31 per cent.

Fifteen years ago Australia's dairy sector was an inward looking, highly subsidised industry, preoccupied with the domestic market, where the prospect for growth was limited. Today, the industry is outward looking, focused on the almost limitless potential of the world markets. Today half of Australia's annual milk production of 10 billion litres is exported, mostly to Asia. Australian dairy products are particularly successful in Japan, traditionally one the world's most demanding of customers.

Achieving this dramatic turnaround has come from continued improvements in competitiveness. There has been significant structural change, which has been difficult and painful, as subsidies for manufactured dairy products have been reduced. Due to these changes in the dairy industry, there have been for a number of years commercial pressures to deregulate the industry. The commercial pressures in Victoria mean that deregulation is inevitable. This will impact on the farm gate price of milk in all states, irrespective of whether or not regulations are in place.

Already, commercial pressures have reduced the regulated farm gate price. In New South Wales the regulated price dropped 3c a litre in July 1998 on the basis of competition. In Tasmania, the farm gate price for milk used for flavoured milk has been reduced by one-third, and similar pressures are growing in Victoria. These commercial pressures are coming from the major manufacturing companies, who now insist that regulations are impeding their ability to maintain their competitive position, a view supported by the dairy farmers in Victoria, the major milk producing state, with 62 per cent of production.

Through their elected representatives on the United Dairy Farms of Victoria the companies believe that regulations are holding back the industry, restricting their opportunities and limiting returns for their dairy farmers. Companies believe that regulations distort market signals, which creates inappropriate investment strategies at both the farm and the manufacturing level. This affects the companies' domestic and international competitiveness and their ability to increase domestic sales of value added products. This in turn is reflected in the price to farmers.

The Australian Dairy Industry Council could see these commercial pressures. In their view, deregulation of the domestic mar-ket milk arrangements was inevitable. They came to the Commonwealth government in April of 1999 to present the industry's case and their views on deregulation. This view was based on their analysis that commercial pressures would undermine any regulatory regime and that deregulation was in the interests of the dairy industry in competing against imported products and in being able to expand into the vital export sector.

In responding to the industry proposal, the government on 28 September 1999 announced details of a structural adjustment package which would be implemented should the states deregulate their market milk. It was not instigated by the federal government, but by the states, should the states deregulate their market milk. This proposal represents the single largest deregulation and adjustment process of any rural sector. After this announcement, the Victorian dairy industry showed overwhelming support for deregulation. In December 1999 the industry voted on deregulation, and 84 per cent of all dairy farmers voted. Extraordinary! An impressive 89 per cent of them recorded their view in favour of the deregulation proposal.

Following this vote, the Victorian Labor government has indicated its intention to deregulate its fresh milk arrangements with the Commonwealth package. It is widely believed that even without the Victorian decision commercial pressures would make the state arrangements unsustainable over the near term. With the Victorian industry dominating Australia's annual production of 10 billion litres and producing 63 per cent, the other states—including New South Wales, which produces 13 per cent; Queensland with eight per cent; South Australia and Tasmania, each with six per cent; and Western Australia with four per cent of milk production in Australia—had no choice but to follow the lead of the Victorians to deregulate their milk industry.

Polling in New South Wales has also shown support for deregulation, with 65 per cent of producers giving it the thumbs up. The Commonwealth government imposed a condition upon the structural adjustment package. That all states must deregulate arises from the Commonwealth's obligation to ensure that all dairy farmers across Australia are treated fairly and equally and from the necessity to avoid significant market distortion.

The package this government is providing is not about providing compensation for removal of quotas and regulation, or about providing income support. The adjustment flowing from this package will lead to better industry performance than would otherwise be possible and this in turn will assist in maintaining, and in the long term increasing, job opportunities and incomes in regional dairy areas.

Deregulation without a package would be devastating for some regions. This package helps to sustain the viability of the dairy industry and those regions by maintaining viable dairy enterprises with the subsequent maintenance of related employment. The essential service industries that support the dairy industries and enterprises will also be better able to remain viable because of the survival of their customers. Rural communities will be provided with a major and real contribution which will help maintain the basic fabric of their economies.

The package is made up of two programs. The first is the Dairy Structural Adjustment Program, which as we have heard before will provide in total $1.632 billion to producers based on their deliveries of manufacturing and market milk in 1998-99. Payments for market milk deliveries will be calculated at the rate of 46.23c per litre. The higher payment available for market milk reflects the premium associated with market milk delivery under the current, regulated arrangements. Payments will be made in quarterly instalments over eight years and are transferable to primary producers. To be eligible for payment under the package, producers must have had an interest in an eligible dairy enterprise on 28 September 1999, the date the government announced the package. Where a producer can show that, due to severe and abnormal circumstances, deliveries in 1998-99 were 30 per cent or more below the average of the previous three years, the authority may consider providing a supplementary payment. While the package is basically designed to provide adjustment assistance to dairy farmers who are potentially viable and profitable suppliers of milk after this transition, it also addresses the needs of some farmers who may need to seriously consider leaving the industry.

The second program in the package is a specific $30 million Dairy Exit Program to allow farmers who choose to leave their farms and agriculture to do so with some dignity and prospects for the future. The exit program will run for the first two years of the package and will provide payments of up to $45,000 tax free. Conditions for an exit payment will be the same asset test and eligibility requirements that apply under the restart re-establishment grants of the Family Farm Restart Scheme.

The whole package will be funded from a levy of 11c per litre on the sale or equivalent transaction of all liquid milk products. Sales of imported milk will also be covered by the levy, as the levy will apply to all liquid milk products sold domestically at the point of use. Liquid milk products destined to be exported will be exempt. The 11c per litre levy commences on 8 July 2000 and is expected to run for eight years. The money raised from this levy will enable payment to producers under the package. The levy will also meet all administrative and borrowing costs associated with the package. In developing the dairy industry adjustment package, the government consulted widely with dairy farm organisations and has, as far as possible, designed a package which will meet the majority of the dairy farmers' needs in the future, whether they choose to continue in the dairy industry or to exit the industry or agriculture.

Overall, the dairy industry is the fourth largest exporter of Australian agricultural production. It accounts for a greater value of production than the wool industry. This has resulted in considerable benefit to regional areas, with many local cooperatives, including in Tamworth in my local electorate of New England, increasing in size and being major employers of local labour. Dairy farmers have also seen their income increase markedly in real terms. With this, local business profitability and employment have also increased. Let us remember that the Australian Labor Party failed to tackle the difficult issue of dairy deregulation. While the domestic dairy industry has grown successfully to a $5 billion annual turnover and the export industry has grown to over $2 billion, future growth lies in the expansion of export markets. The major exporters believe this requires the removal of price regulation. With a managed approach to a deregulated environment, the industry can continue to build on its past success and become an even more significant contributor to the Australian economy. This success will be shared by the regional economies the dairy industry supports.