Senate debates

Thursday, 5 December 2019

Ministerial Statements

Dairy Industry

3:33 pm

Photo of Bridget McKenzieBridget McKenzie (Victoria, National Party, Minister for Agriculture) Share this | Hansard source

It's my absolute pleasure to come into the chamber to talk about the plan the Liberal-National government have to support Australian dairy farmers. I'm an optimist when it comes to agriculture in this country and this is how I see the dairy industry. It is an industry that is glass half full. Yes, the industry is facing some challenges at the moment. Drought and high input costs of water, fodder and electricity are having a real effect on our dairy farmers. Despite historically high farmgate prices at the moment, farmers are not seeing that turn into profit, partly because of the cost of production. The warm and dry winter has played havoc on milk production across Australia, especially in the northern regions. Milk production on farms across Queensland and New South Wales has been contracting due to prolonged drought conditions, and the failure of some grain crops in these areas is temporarily decreasing fodder availability, with forecasts showing the feed supply will remain tight.

Tasmania and southern Victoria bucked the trend, though in Victoria on-farm costs grew by 20 per cent last financial year as a result of higher priced irrigation and feed. Things have been tough, particularly in northern Victoria and southern New South Wales, with limited water availability and high input costs. For example, the median price for temporary water in northern Victoria has been well in excess of that required to turn a profit as a dairy farmer. In South Australia, crop yield expectations have been downgraded due to frost this year, and the cost of feed is persistently high. Right now milk production in Western Australia is ramping up after a late start to the season, but, whilst the cost of stock feed wheat has reduced by 23 per cent, the price of hay has substantially increased over the last year.

Dairy production is expected to fall by a further three to five per cent over this financial year, as the ongoing challenges of drought and high input costs mean that farmers are making tough decisions to sell or cull their stock. The dairy-milking herd has reduced as farmers proactively manage the risk of poor animal welfare outcomes in drought. Farmers are also managing the risk of heat stress in their herds, which further lowers milk production in the drought. This season's farmgate milk price will provide many farmers with the chance to make up some ground financially. However, high costs of feed and water—not to mention the ongoing drought—will continue to hold back profitability. Whilst these challenges persist, milk production is likely to remain subdued.

Our government knows it is tough. We recognised our dairy farmers were doing it tough prior to the last election. We've not come to this issue yesterday, like others, who may claim to be fighting for the dairy industry. That is why our government has a real plan to support dairy farmers across Australia and to address both price and input costs. I and all those on the government benches want to see a vibrant, sustainable and prosperous Australian dairy industry that continues to produce safe, nutritious dairy products not only for Australians but also for the world.

To address the effects that input costs are having on the industry, our government has taken the following actions. For those experiencing drought conditions, we've announced over $8 billion in drought measures and improvements to the farm household allowance, to ensure that many eligible farmers, including dairy farmers, are able to receive assistance. That includes $98 million to make up to 100 gigalitres of water available to produce fodder, silage and pasture, which is due for open application this month. This will directly assist dairy farmers in the southern basin but will benefit all as more fodder becomes available on the market. Our government is providing $3.3 billion of funding through the National Water Infrastructure Development Fund, and our government has established a $100 million National Water Grid Authority to bring together the world's best science to identify opportunities and plan the next generation of water infrastructure.

Electricity prices—particularly for those dairy farmers in Queensland, where the operation is state owned—are wreaking havoc on profitability. We have a plan that includes $10 million to assist dairy farmers to upgrade or invest in energy-efficient equipment to reduce their energy costs. That's something that those particularly in North Queensland are telling us that they want to see. Our government has also put in place a price safety net, capping standing-offer prices. We've introduced a reference price when it comes to electricity, requiring advertisers to make offers more transparent, and we've progressed the big stick legislation to ensure that electricity retailers pass on those reductions.

We've improved the productivity of our dairy farmers, including a modernisation plan through the research and development corporations. And that's not all. We're progressing the review of the EPBC Act, and this is in addition to the Craik reforms. We've had $3 million of grants to support farmer groups to set up farm cooperatives and other collective business models so that they can address some of the structural issues within the dairy industry to gain more market power against the processors and the retailers.

To help farmers get the best price for their milk, our government has taken the following actions. At the election we announced a suite of measures: $8.1 million in additional funding to the ACCC's agriculture unit and a dairy specialist. That is already proving returns, as the ACCC result for Norco against Coles has seen today. The Nationals were key in delivering the effects test to limit the use of market power by big business and strengthen protections against anticompetitive behaviour. We've backed the development of cooperatives and mutuals. We're creating more opportunities to sell dairy products at premium prices by actively supporting our dairy farmers to get the most of our free trade agreements, by working to reduce or remove barriers to trade to establish new technical market access. This is in addition to fighting for Australian dairy through the negotiations of the geographical indicators that are part of the EU free trade agreement negotiations. The gains from trade are clear. Under the TPP-11, cheese tariffs with Japan, covering almost $100 million of trade, will be eliminated. That is great news for Australian dairy farmers. Under the FTA with China, tariffs on all dairy products will be abolished by 2026. Our government also recognises the increasing significance of non-tariff measures for Australian agricultural industries, including dairy, and the impact that they have on restricting market opportunities, imposing unreasonable additional costs on export.

But, most importantly, our government is working to deliver the mandatory dairy code of conduct for industry, due to be in operation by 1 January 2020, to help protect farmers against egregious conduct from processors, to improve transparency in the industry and to set enforceable minimum standards of conduct for business practices between farmers and processors. Today I am pleased to announce to the chamber that we have received broad support from industry right across the country, across all states—Queensland, Western Australia, South Australia, Tasmania, Victoria and New South Wales. The dairy industry is supporting our efforts to deliver a mandatory code. The code will cover seven of the eight recommendations made by the ACCC in its 2018 dairy inquiry. Recommendation 6 is covered by our election commitment of half a million dollars to Dairy Australia to provide financial and legal advice to farmers so that they can properly consider the implications of their contracts with processors. This means that by 1 January 2020 all of the ACCC recommendations will have been delivered—just over six months since being returned to government.

Finally, I want to make this point in relation to alternative proposals that are being suggested in this chamber, notably the push for a floor price. Those proposing floor prices don't support the government pursuing free trade agreements with new markets. They don't support dairy exports that help the industry to grow. We support and we've demonstrated that we want Australian dairy farmers to get paid a fair farmgate price, but we do not support a floor price. In the last 10 years there have been 10 reviews into the dairy industry. These reviews examined the key issues around pricing, cost, performance, contracts and supply chain, but not one of those 10 reviews in a decade of examination supported the introduction of a floor price. Any floor price ignores the basic principles of economics, supply and demand; and does nothing to fix the underlying issues, like the high input costs for fodder, water and electricity; and the difficulty farmers have in negotiating a fair price for the milk that they produce with the processors. A floor price would create damaging distortions across the dairy regions; incentivise the purchase of milk from southern states, where production costs are historically lower; significantly impact other states, like Queensland, New South Wales and WA; and mean that imported dairy products, such as cheese and milk powder, would become cheaper in comparison.

Raising the price of milk paid to dairy farmers would reduce our competitiveness as an exporter, and the floor price is also likely to reduce the profitability of dairy farmers by increasing competition for inputs such as feed and water. Importantly, history shows that price regulation doesn't work. If you want a great example, look at the wool industry when it comes to floor prices. I'm pleased that, in combination with my colleagues, we're taking up the fight for Australian dairy farmers to the supermarkets. I'm proud of our work as a government. We're going to deliver our ongoing plan to support our dairy farmers. I believe, my team believes and our government believes that the dairy farmers in this country have a very bright future, and we are doing everything we can to support that end.


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