Milk deregulation battle boils over in Australia

By Boyd Champness

SYDNEY – Battle lines between Victoria and the other big Australian milk-producing states have been drawn up, with Victoria the only state favouring deregulation.

Victorian farmers claim that milk regulation benefits the other states – New South Wales, Queensland and South Australia – at their expense. Victoria, because of its climate and topography, lends itself to milk production, making it the largest dairy producing state.

The argument is over the regulated and premium-fetching fresh milk market. Because production levels are a lot smaller in NSW, Queensland and South Australia – and because those markets are captive and consumption levels are relatively high – farmers in those states are guaranteed fresh milk prices for 50% of their milk.

But farmers in Victoria are only guaranteed fresh milk prices for 7% of their milk – the rest goes into manufacturing, which is less profitable.

Victorian farmers and processors argue that manufacturers in other states cross-subsidise; that is, they take profits gleaned from their fresh milk markets and subsidise their manufacturing operations, and in doing so, undercut Victorian manufacturers and producers.

Cross-subsidisation and the regulated milk system has allowed processors in the other states to discount their manufactured milk on both the domestic and export markets, according to Ian MacAulay, chairman of Murray Goulburn, one of Victorias largest farmer co-operatives.

“They [rival manufacturers] are cutting prices to the point where we either lose profits or sales,” Mr MacAulay told The Weekly Times last week.

“It happens on a regular basis. If it was just fifty dollars a tonne it would be in the bounds of normal competition, but its not. We are talking hundreds of dollars,” he said.

The United Dairy Farmers of Victoria, the Australian Dairy Farmers Federation and the Australian Dairy Industry Council have all agreed on the deregulation route. They hope to have deregulation in place by 1 July next year.

A compensation package of A$1 billion (£390m) has been agreed to help farmers adjust to deregulation. The package is supposedly equal in value to what farmers would receive under the current environment over the next three years.

Because 85% of Victorias milk goes into the less profitable manufacturing side, Victorian farmers would receive about half of the compensation package.

However, the package is not likely to receive Federal Government support unless all states agree.

The Dairy Farmers Group – Australias biggest processor with 60% of the market in NSW and Queensland and 50% in South Australia – believes deregulation has the potential to cost the Australian dairy industry $450m (£180m) annually.

Dairy Farmers Group chairman Ian Langdon told magazine Stock and Land: “I cant see deregulation benefiting anyone – it seems that manufacturers are putting their view forward and the United Dairy Farmers of Victoria are accepting this,” he said.

“Who is going to be accountable when they are shown to be wrong? There is no recovery once regulation is gone.

“Id say at the moment that it is absolutely odds on that we will have deregulation, [but] I issue the challenge to the Victorian leaders to stand up and debate this in the proper forum.”