NATIONAL AFFAIRS - by Patrick J. ByrneNews Weekly
Senate inquiry questions dairy deregulation
, December 4, 1999
As Victorian farmers prepare to vote on the issue of dairy deregulation, a little publicised report by the Senate has raised serious questions about the policy.
The recent Senate Rural and Regional Affairs and Transport Reference Committee report, Deregulation of the Australian Dairy Industry, raises serious questions about the National Competition Policy process.
It says that, in part, deregulation is being driven by the need to get production costs down so that farmers can compete on the world market.
Yet, the report pointed out that Australia already has close to the lowest milk production costs in the world. We produce on average at 28 cents per litre, compared to New Zealand at 26 cents per litre, European Union 44 cents per litre, USA 40 cents per litre and Japan 96 cents per litre. (p 34)
With the outcome of the current round of World Trade Organisation talks, aimed at reducing agricultural trade barriers, very doubtful, where will this leave Australian dairy farmers in a completely deregulated market?
The Australian Dairy Farmers Federation Ltd told the Senate inquiry:
'Deregulation of the Australian dairy industry will mean it will be the only major dairy industry in the world without government support for dairy farmers.
'This is including New Zealand, which will continue to have significant government legislative support through the New Zealand Dairy Board single desk export support and privileged access to world markets such as butter access to the European Union which is not available to other countries.' (p.3)
The Senate Inquiry found that there has been little support for dairy deregulation outside Victoria, but believed that market forces would make deregulation inevitable, partly because of the strong push by the largest milk manufacturers, Victorian-based Bonlac and Murray Goulburn.
This would give them access to the big fresh milk markets in other states, at a time when these companies, particularly Bonlac, have considerable debts. Criticism
The milk manufacturers came in for considerable criticism because of their over-investment in new plant and equipment, amounting to $290 million over the past five years, which had led to them operating at only 50% capacity.
The co-operatives in particular were criticised for their lack of financial transparency and the lack of information they have provided to farmer members, both on their financial situation and on deregulation.
The Committee questioned if deregulation would lead to lower prices for consumers.
One submission said that in the UK, deregulation has led to a 'redistribution of wealth in the industry [W]hen you looked at the profit in one litre of fresh white milk, 50% went to the supermarkets, 40% went to the processors and 10% went to the dairy farmer [T]hat is in direct proportion to the market power of those three sectors.' (p. 57)
The Senate Committee said that many submissions expressed the view that with two major processors controlling 84% of the drinking milk market and three supermarket chains controlling most of the distribution, the price of milk will go up to the consumer and down to the farmer. (p. 55-56)
The Inquiry attacked the National Competition Policy process, saying it left the 'legislative process defective.' (p. 173) While the States had conducted inquiries into the effects of deregulation, there had been no national evaluation of deregulation, which was vital as deregulation in Victoria would determine what happened in the other states. (p. 67)
The Inquiry also questioned the adequacy of the Federal Government's proposed compensation package; was concerned that even in anticipation of deregulation the capital value of dairy farms was being substantially reduced; suggested that the number of farmers who will be forced out of the industry has been underestimated; and expressed serious concern at the lack of a regional adjustment package for rural and regional economies adversely affected by deregulation.
The Committee showed considerable sympathy with the argument that 'under a regulated system, farmers are able to make the necessary investment and production planning decisions required, whereas deregulation will make those kinds of decisions more problematic.' (p. 54-55)
However, the Senate Inquiry stopped short of opposing deregulation. It considered the determined position of the then Victorian Liberal Government also made deregulation inevitable. This had meant that only one option has been put to farmers - deregulation with a compensation package to ease the transition to full deregulation - because that was the only option that Victoria would consider.
That situation is now less certain as the new Bracks Labor Government is allowing Victorian dairy producers a vote on the issue in December.
If Victorian farmers vote 'no' to deregulation, it could effectively stop the deregulation process.