Farmers over the past year have endured floods, droughts, fires and now COVID-19 but are remarkably still been able to keep Australians fed and clothed.
For our dairy farmers that has come on the back of deregulation, the morally bankrupt actions of supermarkets to introduce $1 a litre milk and processors being singled out by the ACCC for their part in dairies’ woes.
Last year alone almost 500 dairy farmersleft the industry — many because their cost of production was above the market price. That’s unsustainable in any industry.
But it’s not necessarily all those dairy farmers’ fault. Apart from increased costs due to drought, the ACCC in 2018 identified there was a market imbalance between processors and farmers, so the government, on the recommendation of the ACCC, developed a Mandatory Dairy Code of Conduct.
The code’s implementation has taken time to get right but in the interim it was important to try to get farmers some price relief to help them survive drought and an imperfect market.
Despite fierce opposition at the time, I was finally able to work with supermarkets to break the $1 a litre milk nexus that stripped the value of the dairy industry to the bone.
It was initially broken through the introduction of a temporary levy of 10 cents on supermarkets’ home brand fresh milk.
That was an important first step because it allowed time for the government to consult with the dairy industry and finalise the Dairy Code of Conduct terms. But more needs to be done, because dairy farmers don’t get the full 10 cents in their pocket.
The primary reason for that is for every litre of milk a dairy farmer produces not all of it goes into fresh milk. It’s also used for things such as butter, cheese and yogurt. Many dairy farmers also supply the branded milk market, and these farmers don’t see any return from the present voluntary levy.
Consequently since February I’ve been talking to major supermarkets about individually extending and reviewing the quantity of that levy across the full dairy cabinet and branded fresh milk so that dairy farmers can survive until the full benefits of the code take effect and more reform can be considered. It will ultimately be up to each retailer to determine how much support they are willing to provide our farmers.
During COVID-19 supermarkets have been one of the few industries to prosper, so there is a unique opportunity for them to rebuild trust and work to extend the voluntary levy to ensure more gets into dairy farmers pockets.
But it’s not all the fault of supermarkets, the processors are not without blame either and the ACCC was clear to identify that in their report.
It found that processors have the power to set the prices they pay to dairy farmers and the pass-through mechanisms in processors’ contracts with supermarkets for private-label milk mean supermarkets are bound to honour the increases.
So effectively it found that no matter what the price supermarkets charge consumers for milk, the processors determine what the farmers get.
Processors will argue the supermarkets used heavy-handed tactics to pressure them to push back on any increase by threatening to secure supply elsewhere while the supermarkets claim that would never be the case. Regardless, it’s those at the end of the line that pay the price and that’s been the Australian dairy farmers.
While the new code is designed to eliminate this type of behaviour we have previously seen from processors and supermarkets I believe there are still gaps that need to be explored to ensure even greater fairness and transparency.
Firstly, exploring pre-contractual arbitration like the sugar industry enjoys, protecting farmers from potential predatory behaviour from the introduction of non-exclusive contracts, and exploring a formalised price step-up mechanism that dairy farmers can initiate based on cost of production data.
Australian dairy is an important staple of Australians’ diet and I’m confident they want to pay a fair price to our farmers to continue to enjoy that privilege.
Dairy farmers don’t want charity they just want to play on an even playing field. Supermarkets and processors have a role to play and the time is now.
David Littleproud is the Minister for Agriculture, Drought and Emergency Management.