Milk shake out

by Marcus Browning

Dairy farmers in Western Australia last week followed in the footsteps of 
other states and agreed to the deregulation of Australia's dairy industry. 
This means that as of July 1 this year the price of market milk (fresh 
drinking milk) paid to farmers will no longer be regulated, sealing the 
fate of thousands of dairy farms around Australia.

Manufacturing milk, used in the production of powdered milk and cheese, has 
already been deregulated, part of a process begun in the 1980s by the then 
Federal Labor Government. At the moment state subsidies guarantee farmers a 
farm gate price of around 50 cents a litre.

One of the claims of those driving deregulation is that the price to 
consumers will fall. This may be so in the short term but inevitably the 
major national retailers, such as Franklins, Coles and Woolworths, along 
with the growing monopoly in processing and dairying, will drive the retail 
price up.

A $1.74 billion "adjustment package" will be paid by the Howard Government 
to usher smaller operators to the door, the smallest farms to be offered 
$45,000 up front to get out.

And that's what this process is all about: "get big or get out".

In order to survive in a deregulated market farms will have to be milking 
400-500 cows producing 750,000 to 1.5 million litres of milk per year.

Farm closures translate to loss of jobs and a major decline in the 
economies of rural communities already suffering under higher than average 
unemployment levels.

Last year the Bega Valley Water Management Committee, in the southern 
coastal dairy town of Bega, commissioned a detailed study of the impact of 
deregulation on the local industry and community.

Each farmer (most farms in the area are family owned) in the area was asked 
how they would be effected if their price of milk per litre dropped 5 
cents, 10 cents and 15 cents.

They estimated:

* 5 cents — eight dairy farms would become unviable, affecting 25 family 
members and 10 non-family employees;

* 10 cents — 70 farms would become unviable affecting 228 farm family 
members and 81 non-family employees;

* 15 cents — 121 farms would become unviable affecting 397 family farm 
members and 137 non-family employees.

Those 121 farms have together a yearly household and farm expenditure of 
$52.9 million, mostly put into the local economy.

Monopoly

In 1975 there were around 30,700 dairy farms; last year the count was 
13,150. At the same time herd sizes have increased from an average of 77 
cows in 1975 to 161 last year. In 1984-85 the industry's total production 
was 6,033 million litres; in 1998-99 it reached 10,178 million litres.

This applies also to the main milk processors in Australia, the Italian-
based Parmalat, Dairy Farmers and National Foods. Each are considering 
mergers with the other, with Dairy Farmers currently trying for a takeover 
of a smaller operator, Bonlac.

These developments come together to form a classic picture of the monopoly 
process — an industry owned by a diminishing number of producers but with 
more assets and increased production.