Australian government to probe milk deregulation

By Boyd Champness

SYDNEY – THE campaign to deregulate the Australian milk industry suffered a major setback as the Federal Government initiating a Senate inquiry into the impact of deregulation.

And in a further blow to the deregulation campaign, a senior government economist has warned farmers that deregulation could cut prices by up to 50%.

The Senate (Upper House) inquiry is a coup for disgruntled farmers in Victoria, New South Wales (NSW), Tasmania and Queensland who have joined forces to form the Concerned Dairy Farmers Association.

The association boasts a number of former leaders from the powerful United Dairyfarmers of Victoria (UDV) – the countrys top dairy farmer union – who have been forced to resign from their posts after speaking out against deregulation.

With the support of several Labor and Democrat MPs, the association last week convinced the Federal Government to start the Senate inquiry.

Opponents of deregulation have also seized upon predictions made by Vernon Topp, senior economist with the Australian Bureau of Agriculture and Resource Economics (ABARE) – the Federal Governments chief agricultural forecasting body.

Speaking at the recent Outlook conference, Mr Topp warned farmers premium prices paid for market (fresh) milk over manufacturing milk would be wiped out if the industry was deregulated.

He said the manufacturing and market milk prices would converge if controls were lifted and competition increased – the change could mean a cut in both prices of up to (AUD) 25A¢/litre (8ppl).

In comments reported by Stock and Land, Mr Topp said about 80% of the milk produced in Australia was manufacturing milk, making it “the market price for milk”.

Alternatively, fresh (or market) milk occupies only a small, regulated section of the trade. Therefore if the industry was deregulated the price would be the “market price”, which was the manufacturing milk price, Mr Topp said.

“The manufacturing milk price itself varies a lot throughout the year, and in winter there are premiums to get manufacturing milk. In the rest of the year, when a lot of milk is being produced, it is hard to imagine why processors would pay more for that milk than the manufacturing price,” he added.

Mr Topps comments sparked a furious rebuff from the prime supporters of deregulation, the UDV and Victorian processors.

Both groups said there would always be an inherent premium for market milk so processors could be assured of meeting domestic demand all year round.

The deregulation argument is being fought primarily on state-based lines. The current state-based arrangements for market (fresh) milk are estimated to add about A$330 million (£130m) to dairy farm incomes, but farmers in the smaller milk producing states benefit far more than those in Victoria and Tasmania.

According to ABARE figures, Victorian farmers only receive an extra 17% of income from the state-market milk premiums, while the premiums for NSW farmers add an extra 85% to their income.

If the ABARE predictions are true, dairy farmers in Victoria and Tasmania, who have geared their low-cost operations towards manufacturing milk, will be the big winners under deregulation.

Farmers in NSW, South Australia, Western Australia and Queensland, who have in the past enjoyed the fruits of a regulated state-based arrangement for market milk, could find themselves at a distinct disadvantage.