PRIMARY PRODUCE: by Michael KearneyNews Weekly
Pernicious policies killing Australia's dairy farmers
, May 27, 2006
Australia's dairy farmers are being undercut by subsidised processed imports and have been denied any means for obtaining a fair domestic price for their fresh product by industry deregulation, reports Michael Kearney of the Australian Milk Producers Association.The Australian dairy industry was deregulated under National Competition Policy in 2000. What was touted as a generous compensation package worth $1.8 billion over eight years - funded by an 11¢ per litre levy on the sales of fresh milk - was put in place by the Federal Government.
What is now clear is that the abolition of orderly marketing arrangements has denied milk processors and farmers the market power they need to obtain a fair price for their product. According to ABARE (the Australian Bureau of Agricultural and Resource Economics), since deregulation farmers have been losing $500 million a year due to the drop in farm-gate prices. Even with the adjustment package worth $250 million annually, this still leaves farmers $250 million a year behind where they were at the time of deregulation.Economic loss
This means that, over the eight-year period that farmers are to receive $1.8 billion from the adjustment package, farmers can expect on current trends to lose $3 billion net.
The two major supermarket chains control 70-80 per cent of the grocery market in Australia. Against this duopoly, 10,000 dairy farmers and a handful of milk processors have no market power in order to bargain a fair price for their product.
Not only have farmers lost out in bargaining with just two supermarkets, import parity pricing for processed dairy product is the policy of the day. The free trade policies of the Federal Government mean that domestically-processed dairy product is competing with imported product where the world price is a corrupt price. Across the developed countries, dairy receives a subsidy equal to about 50 per cent of a farmer's gross income.
Arguably, much of the imported processed dairy product is "dumped" - i.e., it can be sold in Australia at a lower price than in the country where it was produced.
Australian dairy farmers are having to compete in their domestic market and on the world market where, since 1990, the world price of skim milk powder has risen only 24.1 per cent, whole milk powder 9.5 per cent, butter 6.6 per cent and cheese 7.2 per cent.
Yet the cost of living and off-farm inputs have risen substantially. Since 1980, average weekly earnings have risen 289 per cent; inflation 218 per cent; the retail price of fresh white milk 233 per cent; petrol 400 per cent; and new tractor prices 650 per cent. Over the same period, however, the farm-gate price of milk paid to farmers has risen from 15¢ per litre to only 29¢ per litre, an increase of a mere 93 per cent.
Dairy farmers are also expected to be good environmental managers. How are they supposed to do this when the cost of environmental management is not included in the price of their product? To be good environmental managers, the first thing they need is what every other business expects, a realistic return on their investment.
Farmers are suffering economic and psychological depression. A major study by Fragar and Franklin has concluded that suicide deaths are a major problem for our farming population.
To stay ahead, to overcome their revenue shortfalls, farmers are constantly told that they have to improve their productivity. The industry has been investing around $30 million a year in research and development. Productivity over the past decade rose 1.5 per cent per annum, or 15 per cent over that time. Productivity rose 20 per cent in the previous decade.
It is time industry leaders, policy-makers and politicians moved beyond the simplistic assumption that productivity and efficiency gains automatically flow on to farmers. Productivity gains cannot make up for (a) the sizeable loss of farm income owing to deregulation, (b) being forced to compete with heavily subsidised imports, and (c) the rising costs of farm inputs.
While farmers are going backwards, record profits are being made by farm-dependent corporations - agri-chemical companies, seed companies, veterinary drug companies, machinery plant and equipment suppliers, processors and retailers.Exploitation of farmers
It is time policy-makers realised how farm-dependent corporations can exploit farmers. Supermarkets can dictate prices or simply deny your product shelf-space. They can demand that processors "rent" (i.e., pay for) shelf space, and can require processors to pay "rebates" for handling their products. Supermarkets are shifting to home brands, which mean farmers being paid lower prices on those products.
Fertiliser companies and semen suppliers can manipulate the price of their product to go up and down with the price of milk. Seed companies have plant-breeders' rights and have built terminator genes into their product so that they have can maximise their control and price over that product.
Free trade policies and National Competition Policy are killing the dairy industry and Australian agriculture. New policies, based on the reality that farming cannot survive under such policy regimes, must be found - and soon.