Currently, dairy farmers are feeling the bleeding edge of deregulation and globalisation in agriculture.
While concepts of trading on level playing fields are laudable, the experience of the last 30 years is that protection in Europe and the USA will not be readily dismantled.
We have allowed export milk prices set in corrupted markets to determine the price of whole milk in unsubidised Australia.
– Ian Lean
It is naïve to expect this situation will change in a time frame consistent with maintaining a viable dairy industry in Australia.
Australian milk producers compete locally against subsidised cheese and dairy products from the European Union, US and other places.
We have allowed export milk prices set in corrupted markets to determine the price of whole milk in unsubidised Australia.
Tail wagging the dog
With only 30 per cent of Australia’s milk exported, the tail is wagging the dog.
Valuing milk at an export price into the internal markets results in a loss of viability of producers. Since fresh milk market deregulation in 2000 returns to dairy producers in Victoria, South Australia and Tasmania have been essentially zero.
There has been marked volatility, with farmers profiting some years, but making big losses in others.
These outcomes were predictable.
I noted in 2000 a “marked downward pressure on market prices for whole milk through the concentration of purchasing power in supermarket chains.
“The effects of these changes on individual producers are to accelerate trends towards larger farms, high production per cow and more intensive management of cattle.
“Less obvious changes may include rural poverty.”
Fast forward to 2019 and many dairy producers have diminished viability with fewer, larger, but less profitable farms.
Fewer farms, less equity
In 1983, dairy producers in all states had more than 90 per cent equity, except Victoria which had about 88pc.
Now only about 33pc of Victorian farms remain and they average less than 66pc equity.
The impact $1/litre on producers was discounted by the Australian Consumer Competition Commission (ACCC), but this price has not been indexed in 8 years.
The severe initial effect is much worse.
Further, large contracts offered by supermarket chains to milk processors have led to low tenders, resulting in farmers receiving prices below costs of production.
Export milk product production was once based on seasonal production from pasture in areas with predictable rainfall.
Fresh milk costs money
By contrast, whole milk is of highest quality, it’s fresh, available all year and costs more to produce.
Not all the collapse in milk production since 2011 can be attributed to $1/litre milk, but declining production and profits and fewer farm numbers are not coincidental.
– Ian Lean
