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Rural and Regional Affairs and Transport Legislation Committee
18/10/2016
Estimates
AGRICULTURE AND WATER RESOURCES PORTFOLIO
Dairy Australia

Dairy Australia

[15:57]

Senator LAMBIE: I am just wondering if you might be able to answer some questions. Does Dairy Australia consider that the milk contracts of Murray Goulburn and other large milk companies, which allow retrospective clawback of tens of thousands of dollars of additional debt placed on our dairy farmers, are legal?

Mr Akers : Legal?

Mr Quinlivan : Senator, could you speak into the microphone?

Senator LAMBIE: Do you believe that the retrospective clawback of tens of thousands of dollars of additional debt which has been placed on our dairy farmers is legal? Do you believe that is legal?

Mr Quinlivan : Sorry, we are just struggling to hear.

Senator ABETZ: Yes, it is difficult to hear.

CHAIR: Can I just assist you. Are either of you lawyers?

Mr Akers : I am not. Ross is.

Mr Quinlivan : Nor regulators. Off the bat, that is who the question goes to. But nevertheless—

CHAIR: It might assist Senator Lambie with the way that she can have her question answered, if possible.

Senator LAMBIE: As you people are the regulators and Dairy Australia, what is your take on the retrospective clawback? Do you think it is fair and do you think it is legal?

Mr Akers : We are not regulators.

Senator LAMBIE: Do you think that clawback is fair?

CHAIR: That is an opinion question.

Mr Akers : That is a commercial issue for the companies at this point in time.

CHAIR: It may assist Senator Lambie if you can just spend a minute or two talking about your role in dairy. It will aid her to direct her questions more precisely.

Mr Akers : We have a varied role. We are an industry service body and a research and development corporation. As with the fifteen other RDCs across Australia, we collect a levy and it is matched by the federal government. We do a number of research, development and extension projects across Australia, as well as some overseas market development. We are not in the regulatory space and we are not in the advocacy space.

Mr Quinlivan : To the best of my knowledge, the ACCC is investigating the conduct and ASIC is investigating governance arrangements and compliance with company law. They would be the two processes that would ultimately answer the question that you asked first. As to whether they are fair or not—I think that is a question of judgement about which there might be a variety of opinions.

Senator LAMBIE: Do you not have dairy farmers out there who are members and pay you fees—a considerable amount in fees?

CHAIR: They have indicated that they are a research and development body. If your questions are about research to develop the dairy industry, these are the people to ask. In line with the secretary's comment, the Legal and Constitutional—

Senator LAMBIE: We will not have any research and development in the future because we will not have any milk.

CHAIR: We are not unsympathetic to your position, but the Legal and Constitutional Committee is where you would get answers to those questions—and good questions they are.

Senator LAMBIE: Are we importing New Zealand milk for the fresh domestic milk market?

Mr McElhone : Not that I am aware of. We do import a lot of dairy product from New Zealand and other markets. About a quarter of our cheese and butter consumption here in Australia is of imported product, predominantly from New Zealand. I am not aware of any significant imports of liquid, pasteurised fresh milk, but I cannot be definitive about that.

Senator LAMBIE: What does your research say about the future of milk production in this country?

Mr McElhone : Just last week we released our situation and outlook report. The market projections in that say that there has been a lot of volatility in the marketplace. Obviously global conditions have been pretty difficult time in recent months, although that has begun to show some signs of some recovery. We are already seeing quite a significant impact on most of the major dairy regions across the country. We have done preliminary forecasts that production will be down about five per cent for the year, but as things evolve—we were now getting some very wet conditions through some of the major dairy production regions—that is obviously a moving feast. At the moment that forecast is sitting at five per cent, but it could well be more than that depending on the indications we get about the seasons.

Senator LAMBIE: Can you tell me how the clawback has affected milk prices?

Mr McElhone : As you are aware, in April this year Murray Goulburn and Fonterra elected to step down the season prices. That obviously puts a lot of pressure on farmers who have factored in their costs for the year. The impact on individual farmers of what has panned out over the last six months or so has been made quite clear in the public domain. That impact on farmer profitability comes on the back of quite a challenging season last year. Temporary water prices earlier on in the year were very high, and that was in conjunction with some challenging seasonal conditions elsewhere. All that was compounded by the late season step-down in the price. Obviously it has been a challenging time. On top of that, we have had opening season prices at very low levels, reflecting some of what has been happening out there in the global marketplace.

Senator LAMBIE: When were you guys established—how many years have you been going?

Mr Akers : Since 2003.

Senator LAMBIE: The farmers subsidise the research and development? How much have the farmers put in over the last 13 years?

Mr Akers : The total for farmers? We will take that on notice. I do not have the exact figure. It varies every year, the amount of the levy that is paid, so I do not have a total of that is over the 13 years.

Mr McElhone : But over the last year, Geoff?

Mr Akers : Last year the farmers paid about $32 million.

Unidentified speaker: In levies?

Mr Akers : In levies, yes. About 6,200 farmers paid about $32 million in levies and that is then matched with about 20-something from the federal government.

Senator ABETZ: They pay the levy on the litre, as opposed to the value they get for the litre?

Mr Akers : Yes.

Unidentified speaker: So it is a volumetric test?

Mr Akers : Yes.

Senator LAMBIE: How are those levies collected? Can you run me through the process and tell me whether or not they are compulsory?

Mr Akers : All RDC levies are compulsory, is my understanding, for all the 15 RDCs across Australia. They are collected at the manufacturing and processor point and through the levy collection unit here in Canberra, through the department.

Senator LAMBIE: There are a lot of dairy farmers out there doing it tough, especially in Victoria and Tasmania—due to other reasons. Is there any reason why you cannot renegotiate what levies they are paying you for the next few years, until they can get back on their feet? Are you trying to compromise with your members over the levies they are paying?

Mr Akers : It is a legislative instrument which sets the levy—a federal legislative instrument. We have a review process in place where we review the levy, and that now happens every five years. At the moment we are going out to the industry to review the level of the levy.

Senator ABETZ: Could the growers, themselves, petition for a change, or not?

Mr Akers : The growers could petition as well.

Senator ABETZ: And have they?

Mr Akers : No, not at this point in time.

Mr Quinliven : I think I can say that we have not had any approaches. We collect the levies. I do not think we have had—

Senator ABETZ: I do not know why.

Mr Quinliven : Obviously, they value the R&D and the marketing investment.

Senator LAMBIE: I would have thought they were just trying to keep a roof over their heads—that is probably more important. I would have thought with the amount of money coming in to you people that you probably should pick that up, and under exceptional circumstances, which many of these farmers are now in—have you bothered to speak to Barnaby Joyce about that, or that is not your job either?

Mr Akers : About?

Senator LAMBIE: About what is in the best interests of the farmers. You must be able to see what is going on on the ground.

Mr Akers : Yes, I see what is going on on the ground.

Senator LAMBIE: They are suffering. What things have you put in action?

Mr Akers : We have dairy farmers on the board of Dairy Australia. We are well aware of what is going on on the ground, but we also have a long-term industry that we have got to secure the future of. We have to make sure that we have programs in place that are going to be there for the current time and in the future. We have certainly made a considerable investment, along with industry and government, to try and help people through the current circumstances that we are finding the industry in.

Senator LAMBIE: Do you have people in Dairy Australia who are on other boards like Murray Goulburn or Fonterra, or who have a partner on those boards? Do you not think that is a conflict of interest?

Mr Akers : Yes. I do not know about a conflict, but—

Senator LAMBIE: Do you not find that is a conflict of interest?

Mr Akers : No. My wife is on the board of Murray Goulburn—that is a fact—but there are all sorts of conflicts that people come across in their roles and it is about how you deal with them. We have not seen a conflict in this instance here.

Senator LAMBIE: Would I be able to have a list of those names? If anyone at Dairy Australia has a partner who is on a board that is part of Dairy Australia, like Murray Goulburn, Fonterra or other milk companies out there, could I have their names, please?

Mr Akers : We could get you those names, yes, at some stage.

Senator LAMBIE: Over your 13 years, you have had $50 billion all up over that 13 years—would that be right? Is it $10 billion that you have been given—

CHAIR: They wish!

Senator LAMBIE: with fees between the government—how much money has been given members and government on your levies and the government?

Mr Akers : We get about $50 million to $60 million a year. Between levies and—

Senator LAMBIE: And the government.

Mr Akers : It is about $50 million a year over that time in income from levies and government matching funding. It is probably a bit under $50 million for the whole time.

Mr Joblin : Our total income this year would be about $54 million.

Senator LAMBIE: $54 million, so that is $50 million over a 10-year period. So you have had about $700 million over the last 13 years, give or take. Correct?

Mr Akers : Yes, that works out.

Senator LAMBIE: Tell me about the production. How much less milk do we now sell compared with where you people were 13 years ago? What is the drop in the milk supply—

Mr Akers : Milk in Australia peaked at about 11 billion litres prior to the 2002-03 drought. Last season it was 9.6 billion litres.

Senator LAMBIE: So that has dropped. Over that 13 years, what are some of the greatest achievements that you have been able to provide back to the farmer?

Mr Akers : There are a number of key projects that you could say have come back to the farmer. Some of the things that spring to mind, which are on my farm, include that we have had a very successful cooperative research centre that has now gone into what we call Dairy Bio, which is an enormous amount of work in animal genomics in Australia. We are now able to select bulls on a genomic test at a very young age; we can get them being used in our herds probably four years earlier than previously.

Senator LAMBIE: Are those trials going on on your farm, did you say?

Mr Akers : That is genomic work that we have done, and we are now able to select bulls as calves and know how good they will be and what quality of daughter they will produce. Historically—six or seven years ago—we were having to do a whole progeny test program, which would take five or six years before we would have the same level of confidence to be able to use those genetics within the herd.

Senator BACK: Related to Senator Lambie's question—you mentioned 11 billion litres down to 9.6 billion litres—I would be interested in knowing the herd sizes in those two spaces, to learn whether there has been a change in productivity per cow. We are having afternoon tea soon. It is a little bit of homework, and you can tell us that after afternoon tea—whether or not we are seeing increased productivity.

Mr Akers : Herd sizes have doubled over that time.

Senator BACK: I am wanting to know whether the productivity per lactation has gone up.

Mr McElhone : I have it here, actually. There were about 2.17 million cows back in 1999-2000, and now we have about 1.74 million cows. Over that same time, production—as Geoff said—has gone from about 11 billion litres down to about 9.6 billion litres. Per-cow productivity over that time—

Senator BACK: Perhaps you have given me the homework to do!

CHAIR: This might be the appropriate juncture to suspend.

Proceedings suspended from 16 : 15 to 16 : 30

ACTING CHAIR ( Senator Back ): Welcome back.

Senator LAMBIE: I wonder whether you can explain to me how come over the last 13 years you have obviously been given, as we have established, close to $700 million in funding yet our production has dropped and New Zealand's has doubled? Can you explain why that is?

Mr Akers : We will probably have to go back. I have not finished answering the other question about things that we have seen developed for farmers, and I think that is probably important. We talked about the genomics and the significant achievements in animals. You can see there that even per cow production has increased 10 per cent in that period of time. Mind you, per cow production is not always about profitability either. That is also something that the programs we run out have a focus on. Certainly over the last few years we have developed a number of programs which have farmers much more focused on the business analysis and being business people, which we see as really important.

Pastures is a key factor in the profitability of Australian dairy farms. Looking at what has come to our business around pastures—measurement, how we grow pastures and doing it better—the increased productivity we have got off pastures is a significant thing we have funded and got the benefit of on farm over the period of time. Milk quality is a huge one, if you look at any cost-benefit ratio. We have a program called Countdown Downunder, which looks at milk quality and cell counts. Australia has now got over 80 per cent of its milk produced at the highest quality standards. Basically, most advisers throughout Australia, and farmers also, are partaking in our Countdown Downunder courses. Most of the advice going out around milk quality is coming out of a Dairy Australia program.

Obviously there are huge environmental issues for the many dairy regions across Australia. We have been involved in that and in irrigation work. We have made advancements in irrigation, not only with automation but with fast flow and how we get water on and off better, and we have been part of funding significant amounts of that sort of work right across Australia, particularly in the irrigation areas, and you will certainly see that implemented now on most farms across the region. Those are just a few of the things that have come to fruition on farm which really quickly come to mind.

The question around production increases and decreases across Australia and New Zealand is an interesting one. If you look at where New Zealand increased there are a number of reasons; but do not underestimate the very difficult environmental conditions we have had in the large dairy-producing areas of Australia over the last 10 to 12 years, when you have seen production significantly increase in New Zealand and not in Australia. The drought in that southern Murray-Darling Basin has been very significant. In any production system across the world it is about being able to control your input costs and your feed costs, and when you can grow your own feed and not have to buy it in you have control over that. New Zealand have certainly been able to do that, but here in Australia in that period of time those major dairying areas have certainly had some challenges and have had to be quite innovative in the type of system they have implemented on farm because of what have been very dry conditions over the major dairying regions. That is probably what we would see as a major reason for it.

CHAIR: Senator Lambie, I need to deal with some procedural things. Are we to understand that you have a commitment to be gone?

Mr Akers : Our flight was at 5 o'clock, so we have got another one.

CHAIR: Senator Lambie, what we may have to do, and I know it interrupts your line of questioning, is interpose Landcare Australia, in some attempt to get someone out of here on a flight that they have booked. Mr Akers, would you be able to cooperate with us to allow that? We will try to keep this as short as we can, but clearly if we do not they will have no prospect of leaving.

Mr Akers : We have already booked another flight, so I suppose we can. We are back to 8 o'clock.

CHAIR: I promise that you will be straight after Landcare and we will get you off in time. I do apologise for this. It is unusual but it is an effort to try to do what we can for who we can. Could we have Landcare to the table, please.