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Monday, 14 September 2009
Page: 9549

Mr ADAMS (7:36 PM) —I thank the member for Murray for introducing this motion and I believe this issue has been long overdue for recognition, as there is a problem with the dairy industry in Australia. However, I think she is only looking for bandaid measures in the short-term, rather than looking to provide a future for the dairy industry in the long-term. Hopefully, some good suggestions will come out of the Senate inquiry but I note it has been spearheaded by our Tasmanian senators. I feel we have to look at the takeovers early in 2000 to see what has been going on and going wrong. I believe there have been some deregulatory changes that have not worked in favour of primary producers but have merely consolidated the market of two major overseas-owned companies.

The recent history is quite interesting. From 1 July 2000 longstanding marketing arrangements, under which state governments regulated farm level prices for an output of fresh milk, ceased to exist. This development is generally referred to as dairy deregulation but it should be noted that post farm gate aspects of the dairy marketing had been progressively deregulated over several years immediately prior to that. The main drivers of market milk-market gate deregulation were the long foreshadowed determination of the Domestic Market Support Scheme, DMS, for manufactured milk on 30 June 2000, the push by Victorian producers and processors for deregulation and the National Competition Policy, NCP.

The above factors were all interconnected to some extent and it is difficult to identify the specific role played by each. The DMS scheme contained a sunset clause in its legislation that would end on 30 June 2000 and it was clear that the main manufacturing milk producer states—especially Victoria and Tasmania—would be the major losers from the cessation of the DMS. Farm gate deregulation was strongly advocated by Victoria, which dominates the national dairy industry. The Victorian major dairy companies and producer organisations strongly sought deregulation to coincide with the determination of the DMS. This is not surprising, given their expected associated income losses. But Victoria’s support for deregulation was not confined to the big players. In December 1999 nearly 8,000 out of 9,000 eligible Victorian farmers took part in a plebiscite on deregulation and 89 per cent of those voting supported deregulation and accepted the Commonwealth government’s assistance package.

The state NCP dairy reviews, while seeming to coincide with the termination of the DMS, actually had their own momentum and timetable. The first part of the dairy industry examination examined under the NCP was the post farm gate sector and this has been progressively deregulated with all retail pricing and supply controls removed from 1 January 1999. It was the subsequent NCP review of regulation at the farm level which created controversy. The Victorian NCP review of farm level regulation strongly backed deregulation, while other states’ reviews were lukewarm at best. Nationally, however, governments and the industry recognise that national deregulation was inevitable if Victoria chose deregulation.

The Tasmanian picture is interesting. Some 445 dairy farmers are expected to produce 700 million litres of milk in 2008-09. This represents some seven per cent of the national milk output. The dairy industry directly employs 1,475 people on farms and a further 1,250 in the processing sector. Dairy companies manufacturing product in the region includes Fonterra, National Foods and Cadbury. The estimated value of farm gate production in the region in 2007-08 was $275 million. Dairy export from the region was valued at around $260 million.

The farms surveyed in Tasmania were milking around 351 cows and producing 1.9 million litres on average in 2008-09. The average area of dairy land was 160 hectares. Seventy-seven per cent of Tasmanian respondents have been affected by price step-downs. Step-downs had a major effect on 68 per cent of farms in the region. As a result of step-downs, 33 per cent of those affected decided to decrease the level of supplementary feed used. Seventy-four per cent of farmers in the region undertook some capital investments in 2008-09. The average grain usage dropped from 1.2 tonnes per cow per year to 1.1 tonnes; 87 per cent of land set up for irrigation was actually irrigated in 2008-09 and 78 per cent of respondents typically purchased grains and supplements as required while 25 per cent used forward contracts. For 73 per cent of farms in the region, the most common production scheme was seasonal calving. Some 21 per cent of farms used split or batch calving, while six per cent produced milk all year round.

Tasmanians have had a tough time because they have had a very severe drought in recent years, and there has been an enormous effort to start drought-proofing land in order for farmers to plan their future investment. In recent times we had floods which caused problems with spring calving and generally caused problems because of the long-term drought. With the market now concentrated in two companies in south-east Australia, there is little room for proper competition to work.

The changes that occurred after deregulation were largely driven by the impact on farm-gate returns. There have been some important developments in farm-gate milk pricing. These include changes in the price determination process for year-round milk production, the impact of deregulation on average price received for milk and the emergence of distinct regional variations in milk pricing. Deregulation has affected export returns, which now have a greater effect on the average price received for milk as they have taken into account changes in the values of seasonal milk used for manufactured products.

Dairy companies compete for milk supplies on the basis of annual prices offered for seasonal and non-seasonal milk. The RIRDC report Industry adjustment to policy reform suggests that the key is the monthly profile of milk production. Manufacturers are after seasonal milk for cheese, butter et cetera whereas milk processors need the short shelf-life products like fresh milk. It is the milk processors that need a constant supply. Apparently, the RIRDC commercial requirements for the reliable supply of non-seasonal milk have caused processors to introduce supply contracts. They provided a guaranteed source of supply for a significant proportion of their annual milk requirements, according to the National Competition Council in 2004.

Contract pricing conditions have replaced the regulated price controls as an indicator of the farm gate value of year round milk supplies. These prices are set at different levels depending on the monthly cycle. The average price for non-seasonal milk is supposed to be higher than for seasonal milk as it has traditionally worked, but somehow in Tasmania the contracts have failed to hold their price over a 12-month period.

I believe we should have put into place some resource guarantee so that when contracts were negotiated there were some bottom-line principles to work up a sustainable price. I do not see why the manufacturing companies can send the primary producers broke to compete in the world sense. The deregulation in Victoria caused this dilemma and there was no research done to see how some of the levy that was put in place could have been put aside to hedge against lower world milk demand.

This is not something that can be discussed here in a mere 10 minutes. I will be talking to both manufacturers and producers in the next few weeks to see whether I can get a clearer picture. The federal Minister for Agriculture, Fisheries and Forestry has told me that there are measures that farmers can pursue to assist in the short term. Although we have already provided some assistance through the exceptional circumstances program, there may be other assistance for which Tasmanian farmers can apply. I am looking forward to see what farmers need to help them to negotiate sustainable contracts for their domestic fresh milk.