Thursday, 13 May 2010
Economics References Committee; Report
I rise today to comment on the Senate Economics References Committee report Milking it for all it’s worth—competition and pricing in the Australian dairy industry. I think this is an extremely good and timely report and I join with my colleagues who worked on the committee in thanking the secretariat for the exceptionally good job they did. I also thank my colleagues on the committee for the effort put into trying to get a consensus report here, because a consensus report means that there is a much better chance of delivering the outcomes and the recommendations, which are very strong. I became involved in this inquiry from the start, as Senator Colbeck and Senator O’Brien acknowledged. There was genuine concern right across the political spectrum from Tasmania about the way that dairy farmers were being treated by the processors in terms of the prices that the farmers were being offered. It was very clear that they were being offered prices that were below the cost of production.
The dairy industry has come a very long way since the time that I was brought up on a dairy farm on the north-west coast of Tasmania. The farm had two brothers operating a small acreage, milking 120 head of cattle and with six bales in the milking shed. That was the kind of life that many people across Australia experienced on dairy farms in those days. Since deregulation and consolidation of the industry, whilst there has been an increase in the volume of milk produced and the herd sizes, the number of farms has reduced because they have had to get bigger in order to operate on the scale that is required to be profitable in the industry these days. Therein lies the problem: a lot of people have had to borrow huge amounts of money in order to increase the herd size and in order to buy the machinery that is necessary to carry out dairying these days. They have been vulnerable to the field officers from the processors coming onto their properties and saying, ‘If you buy a bigger and better machine, if you change your calving times and if you change your regime on the property, you can increase your production by X and this will be good for you.’ On a handshake in the paddock, which I still find extraordinary—and I acknowledge that it is the culture of the country; it was certainly my father’s culture as well that if you shook hands with somebody on the property then that was a done deal—these people went and borrowed sometimes a million dollars. It is unbelievable that the banks would actually lend them the money on the basis that a field officer said in the paddock that if they upgraded their machinery and bought X then production would increase and there would be a market.
That is what Senator Colbeck referred to a short while ago and the cause of the difference of opinion on the committee. There was not a difference of opinion on the committee about the behaviour of some of the field officers from the processing companies. Everybody agreed that it is irresponsible to go on to a property and encourage people to increase their production levels without an additional responsibility on the side of the processor to agree to take the additional milk, so that is clear. The difference of opinion was about the strategic plan for the industry in the longer term. I have a different view. I believe that the dairy industry representatives—from government, the processor side and the bureaucracy, if you like, of DairyTas and Dairy Australia—have encouraged increased production and given people the notional view that there is a very bright future for dairying, without saying where those markets are or actually qualifying, in my view, where they intend to process and sell into overseas markets. Until they get that, in my view they are being irresponsible in advocating for increased supply without indicating where the increased demand is likely to be and what responsibility they take for delivering those markets. But, in the context of saying that, I do acknowledge that in the midst of all this there were the global financial crisis and other issues which impacted upon processors—in particular Fonterra, in this case, not making a decision to expand in the way they had said they would.
In commenting on this report, I want to say that I am really quite excited about it, because I listened to not only dairy farmers but vegetable growers and other primary producers in Tasmania and around the country. They are all saying that the problem for them is that they just cannot get a decent price because of the duopoly between Coles and Woolworths—it is just impossible these days—and because of the way that the Trade Practices Act operates. Also, the ACCC is both the organisation that approves a merger and the organisation which then determines whether there is excessive competition or not enough competition in the marketplace. All this has to be changed.
So this report goes beyond the dairy industry in saying that we want a review by the Productivity Commission of National Competition Policy. I am so excited about this, but my excitement is nothing compared with that of former Senator Dee Margetts. She does not know yet but I imagine she will be so excited when she knows about this, because she has done her PhD on competition policy and its complete failure in Australia. A lot of claims were made a decade or more ago, when we established National Competition Policy, about how it was going to increase competition, but look around Australia in the primary industry sector: it has done the exact opposite. If we get an evaluation of National Competition Policy we will at last go back to some sense in relation to this.
There are a couple of other issues that I want to comment on. One is the Trade Practices Act. As a result of the repeal of section 49 of the Trade Practices Act, corporations were prohibited from discriminating between buyers of goods of like grade and quality in relation to the price of those goods if that discrimination was of such a degree or of such a recurring or systemic nature that it would have the effect, or be likely to have the effect, of substantially lessening competition in the market. But that was repealed in 1995 and what happened was that other provisions did not kick in to regulate the issue, so now we have the retailers engaging in price discrimination. There is absolutely no doubt about that. Generic milk is the same as branded milk, yet they discriminate on the basis of price and there is nothing anyone can do about it because of the repeal of section 49. Section 46 does not do it. We definitely need the review of the Trade Practices Act. I would have liked to go further than my colleagues. There is a note in the report that says that the Greens would ban generic milk—and I would if I could—but my colleagues thought that was a bridge too far. But at least I acknowledge they all recognise the problem that is there, because the differential between branded price and generic price is higher for milk than for any other product. On many occasions there is a 33 per cent difference in milk price, which does not occur in other products, and it is exactly the same product; it is just different packaging. If that is not price discrimination then I do not know what is, so we have to deal with this issue.
This report recommends a review of trade practices, a look at restoring provisions around section 49—the whole price discrimination issue—and the evaluation of National Competition Policy. There are also specific recommendations regarding collective bargaining and labelling and so on. I think our colleagues in the dairy industry around Australia are going to really welcome this report from the Senate. They will become excited about it only if they see that the government is prepared to move on it, because now there is a consensus in the Senate that we have to look at trade practices and at National Competition Policy—we have to do these things. Let us hope we will get some action on it, because we only have a temporary ceasefire, in my view, with dairy farmers and the processors for the moment. It can degenerate at any time depending on what happens, for a range of reasons. I would like to fix it in the long run, separate the powers of the ACCC, restore the powers under the Trade Practices Act and have a really good look at whether National Competition Policy has been a panacea and at the claims that were made at the time so that somebody is accountable for them, because out there in rural and regional Australia a lot of people have suffered because those claims have never been substantiated.