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Issue #1733      June 1, 2016

Milking profits

The deregulation, free-market policies promoted and imposed on the Australian economy by the Coalition government wreak disastrous outcomes wherever they are implemented. At the moment this is no more evident than in the latest big business free-for-all in Australia’s dairy industry.

Dairy farmers and their supporters have taken to the streets in cities and towns around Australia after processor Murray Goulburn cut the price for milk solids from $5.60 to as low as $4.75. This was followed buy NZ-based processor Fonterra. The processors and their co-conspirators the Coles-Woolworths supermarket monopoly are facing the wrath of the farmers in an angry backlash with the farmers stating they are victims of “immoral” cuts to milk payouts.

After months of claiming prices would “hold”, Murray Goulburn cut its price late in April. As the largest operator it sets the benchmark price, allowing Fonterra to follow suit, thus also hitting dairy farmers in New Zealand.

On top of that blow, farmers have been told the cut will be backdated to last July – a whole financial year. Lobby group Farmer Power raised the possibility that hundreds would be forced out of the industry.

An estimated 30,000 jobs will be lost in rural towns and communities: there are 6,100 dairy farms nationwide. National Party leader and deputy prime minister Barnaby Joyce opportunistically came up with an extension of the government’s failed low-interest loans scheme – already offered to drought-affected farmers – and around $2 million for financial advice and counselling services for dairy farmers. The loan scheme will push farmers deeper into debt.

Farmer Power is calling for a review of the entire industry and a prohibition of the “claw back” provisions that has allowed the processors to retrospectively cut milk prices to farmers. Farmer Power is also calling on the government to establish a 50-cent levy on every litre of fresh milk sold in Australia that would form a pool of money to financially assist farmers directly.

“Farmers do not need any more loans; they’re at the end of their line of credit now,” said the group’s Alex Robertson. Dairy farmer Mandy Pacitti said government assistant measures were only a short-term fix. “It’s a help for those suppliers if they want it, for sure, but at the end of the day if we’re not going to get paid a profitable amount of money we’ve still got to service the loan.”

Farmer David Smart stated: “Our current cost of production is 44 cents a litre; if we drop below that [in returns from the processors] we’re finished. In six months we may not have a future. I’m trying to set up a future for my children and if things keep going the way they’re going, we just won’t be farming any more.”

Background dairy deregulation

The deregulation of Australia’s dairy industry has seen thousands of dairy farms go to the wall, the upshot of the former Howard government’s deregulation plans in 2000 – to scrap all State pricing controls on fresh drinking milk which has seen a growing control by processors and the Coles-Woolworths monopoly over dairy produce as smaller farms were priced out of existence.

While milk prices for consumers fell slightly in the short term, inevitably the big dairy conglomerates and major retailers have forced dairy produce prices up while the return to smaller farms for their produce has continued to drop.

The deregulation was conditional on the agreement of all the States, so the Howard government dangled a $1.8 billion “adjustment package” in front of state governments, to be paid for by consumers through a levy of 11 cents per litre on retailers.

The package was used as a form of subsidy to ease many smaller operations out, and for an up-front payment of $45,000 for the smallest producers to leave the industry immediately.

Dairy industry groups, such as the Dairy Industry Council, reckoned the plan will close around 3,000 dairy farms. They were right.

Dairy farms are mostly family affairs.

Across all the dairy farms there is an estimated 2.3 full-time equivalent farm family members employed on each farm with an additional 1.1 full-time equivalent non-family members.

This represented the equivalent full-time employment of 507 family and non-family members in all the region’s dairy farms.

Grocery wars

In the end, the manoeuvring of the grocery monopolies for even greater market share has managed to dislodge farmers from their traditional way of life where drought, storms and floods could not.

It started with Coles’ decision to reduce the price of its home brand milk to $1 a litre. Woolworths, Aldi, Franklins and others fell in behind. Bread, butter, toilet paper, breakfast cereal and other products have followed. However, it’s not just bad news for farmers – consumers are being manipulated to strengthen the grip of the supermarket monopoles. Ultimately, consumers will join the other vanquished small players as victims caught up in the grocery wars.

A Senate inquiry into milk prices was held in May 2010. It recommended the Australian Competition and Consumer Commission investigate milk pricing but nothing eventuated. The ACCC cleared Coles and Woolworths of charges of predatory pricing practices or running a duopoly following previous investigations

When markets have been deregulated “market forces” were meant to produce the best outcomes for all players. Dairy industry deregulation in 2000 came with the promise of smiles all around. Farmers have never benefited and their situation is now reaching desperation point.

Next article – Editorial – Come July 2

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