AGRICULTURE: by Michael KearneyNews Weekly
Political will needed to solve dairy industry crisis
, February 14, 2004
In 1999, with brutal frankness, the Senate Rural and Regional Affairs and Transport References Committee into the Australian Dairy Industry declared "that deregulation of the Australian Dairy Industry is inevitable because there is no political will to prevent it [being deregulated]".
A tumultuous five years ended in the dairy industry being totally deregulated, leaving it exposed to the "chill winds" of National Competition Policy, export markets, trade reform, productivity, efficiency and structural adjustments which have now become the substitute for meaningful rural policy in Australia.Effects
The effect of deregulation can be summarised as follows:
- prices for milk in capital cities rose 27cents/litre in the three years after deregulation compared to 9cents/litre in the three years before deregulation, according to Australian Bureau of Statistics figures;
- total net farm profits from dairying have been negative post-deregulation;
- the rate of loss of dairy farmers from the industry more than doubled after deregulation;
- despite a $1.8 billion Dairy Restructure Package, financed by a consumer 11cents/litre levy on fresh market milk, farmers' income losses from the falls in farm gate prices for market milk was more than they received from the levy; and
- as the price has risen to consumers and down to farmers and processors, the benefits of deregulation has gone to the retailers. For example, Sydney milk prices went from $1.15 to $1.54/l, while the farm gate price to farmers fell from 53cents to 34cents/l in the three years after deregulation.
The dairy industry cannot be seen as an issue in isolation. It is in reality the symptom of failing agricultural policies. The implications of an ailing dairy industry in rural and regional Australia are difficult to contemplate. More than 3000 dairy farmers departed the industry in the past three years, since deregulation.
Some economists are warning that, as dairy farmers struggle with a meagre income that is declining in real terms, the next shake out that's likely to happen will have broader regional impacts, and wider political implications.
The World Trade Organisation and Free Trade Agreements have seen aggregations of companies world wide from $500 billion in 1991 to $4,500 billion in 2000. i.e., less competition. CEOs of large corporations know that to "maximise profits" they have to "minimise competition."
The dramatic net farm income collapse has Australian Federal and State Ministers of Agriculture scrambling to find an explanation. Most often, their explanation is that the crisis is caused by agricultural subsidies, primarily European. These politicians have pledged to work through trade negotiations to rid the world of subsidies and, thus, restore prosperity to Australian farmers.
Those who blame the farm income crisis on European Union (EU) subsidies put forward the following analysis:
EU subsidies led to increased EU production which has led to oversupply which has depressed prices which has led to the farm income crisis.
If production is increasing in relatively unsubsidised countries at a similar rate to that of highly subsidised EU countries, any casual link between subsidies and increased production is broken.
Australia and New Zealand, by far the two least subsidised countries in the OECD, have increased dairy production by 40% in the past 10 years. They are expected to have further increases of 35% in the next few years compared to 2% for the EU in the same period. This clearly demonstrates there is no causal link between subsidies and increased production.
Therefore farming organisations that look to the World Trade Organisation or to free trade agreements for relief from the crippling farm income crisis, will be disappointed, because this is not where the problem lies.
The failed strategy of "maximising efficiencies, has seen Australian dairy farmers increasing milk production with fewer farms and cows, and showing productivity increases of 14% since 1993, but returns have not even kept up with inflation.
This is not to suggest that dairy farmers or policymakers should reject new technology, but that everyone should move beyond the simplistic assumption that the financial benefits from technology will automatically flow to dairy farm families.
With dairy farmers now left rudderless, with no coherent rural policies, only the failed dictums of get more efficient become more competitive, it seems that dairy organisations need to adopt different strategies of direct political activity.
There are many Federal rural seats where dairying is a significant industry.
In election year, political action is needed to get governments to address these issues.
- Michael Kearney
Australian Milk Producers Association