RURAL AFFAIRS: by Patrick J. ByrneNews Weekly
Dairy crisis part of wide rural malaise
, February 2, 2013
The worsening crisis in the dairy industry is symptomatic of a deeper malaise afflicting Australia’s farming community.
In mid-January, over 600 people attended a dairy crisis meeting in the Kolora-Noorat Football Club rooms in south-west Victoria. The meeting demanded a fairer farm-gate price for milk, because the big supermarket chains’ milk price war is driving many farmers out of business.
According to the Weekly Times (January 16, 2013), the protest meeting was informed that the income of dairy farmers will be down by as much as $260,000 this season; feed costs are up 15 per cent; and electricity costs are up 50 per cent. There is an oversupply of dairy farms on the market. The value of dairy farms is down by as much as 45 per cent, and dairy-dependent towns are suffering as a result.
The immediate problem stems from Coles and Woolworths’ decision two years ago to slash the price of their home-brand milk to $1 a litre. Recently, they extended the discounting war to their convenience stores.
The price war sparked a 2011 Senate inquiry. At that time, industry analysts told the Sydney Morning Herald’s Business Day (February 12, 2011) they believed that Coles aimed to extract at least $500 million from its supply network to underwrite the price cuts.
Following the Wesfarmers’ acquisition of Coles in 2007, a British team was brought in to revamp Coles on the advice of Archie Norman, the British supermarket executive accredited with turning around the UK retail giant Asda.
The team included Ian McLeod, who became Coles’ chief executive officer.
A former Coles buyer, who had left the company, told Business Day that if McLeod were to achieve his target, he could qualify for a $38 million bonus at the end of his five-year term as CEO.
Today, McLeod has been with Coles almost five years. He is one of the nation’s highest-paid executives, pulling in $14.8 million in 2011-12, eclipsing the salary of his boss, Wesfarmers chief executive Richard Goyder (The Australian, September 27, 2012).
Meanwhile, other rural industries are also suffering.
Cattle and lamb prices are languishing. Sheep are selling for half the price of 12 months ago. In Victoria’s fruit bowl around Shepparton in the state’s north-east, the big SPC Ardmona factory has slashed the take of apricots and other fruits.
The immediate problem for the fruit industry is the high Australian dollar. At US106¢, many Australian farm industries cannot compete with subsidised products on world markets, and they can’t compete with cheaper, often subsidised, imports in our domestic market.
However, the problems facing farmers go back much further. Their problems stem from the destructive economic policies forced on the rural sector over the past two decades.
Under National Competition Policy, many areas of agriculture since the mid-1990s have been deregulated.
These include AgVet Chemicals, bulk-handling (single selling-desks for wheat, barley and sugar), dairy, fisheries, food regulation, forestry, grains, horticulture, potatoes, poultry, quarantine, rice, sugar, veterinary services. In addition, the deregulation of the water industry has been included as part of competition policy.
Competition policy has ignored the fact that market power is skewed in favour of Australia’s supermarket duopoly, industry processors (where there is increasing concentration of ownership) and powerful global traders, and against large numbers of individual farmers.
Successive federal governments have pursued competition policy in parallel with radical free-trade policies. Governments have long argued that Australian farmers just have to hang on a bit longer until the World Trade Organisation’s Doha round of negotiations achieves free trade in global agriculture, which would then deliver windfall returns to Australian farmers.
In 2009, the Australian Farm Institute devoted an issue of its Farm Policy Journal to evaluating the likelihood of nations around the world coming to an agreement to open up their markets.
The AFI’s director, Mick Keogh, concluded, “Perhaps it is … time to stop assuring Australian farmers that agricultural trade liberalisation is ‘just around the corner’.…
“The promised pot of gold for Australian farmers at the end of the ‘level playing-field’ rainbow is as distant and elusive as it has ever been.”
Recently, farmers have taken another hit. The new Murray-Darling Basin plan has just been adopted into law. Consequently, around one-third of irrigation water will be taken out of farm production, devastating many Basin communities.
It seems that governments have lost sight of the importance of agriculture, even though it is worth about 3 per cent of the economy at the farm-gate and over 12 per cent when the input and downstream industries are included.
It provides high-quality food and food security to the nation.
The latest blows to farmers come just as they should be enjoying the benefits of emerging from the long drought.
Resentment towards both sides of politics is palpable across rural and regional Australia.
Perhaps the greatest problem, and disappointment, has been that many farm peak bodies either capitulated to destructive government polices or, worse still, supported them.
Patrick J. Byrne is vice-president of the National Civic Council.