Australia’s beleaguered dairy industry is in a “David and Goliath” battle for its medium- to long-term survival.
At risk are not only the livelihoods of Australia’s 5000 dairy farmers but also the viability of Australia’s fourth largest agricultural industry.
Australia’s dairy farmers have endured bushfires, droughts, cheap imports, poor farmgate prices and, more recently, cutbacks in consumption of dairy products due to the COVID-19 restrictions but their biggest challenge is to attain a fair and reasonable price for their product.
Bush poets have long written about the resilience of the Aussie farmer but for many dairy farmers, the future looks bleak.
The genesis of the dairy industry’s most recent travails can be traced to 2011 when major retailers Coles and Woolworths introduced $1-a-litre milk, severely reducing the farmgate price paid to farmers. Cheap imports exacerbated the problem.
After pressure from federal Agriculture Minister David Littleproud last year and an investigation by the Australian Competition and Consumer Corporation (ACCC), the price of private label fresh milk was increased by 20 cents a litre but the damage was done.
Minister Littleproud has asked the supermarkets to work with the processors to ensure that a fair price gets back to the farmgate.
“We’re not dictating how that should happen,” he said.
“Supermarkets could, for example, consider increasing the amount of support they collect on private label milk and to also consider applying similar measures to branded milk and other products across the refrigerated dairy cabinet.
“This would allow the benefits of the supermarkets’ levy to be distributed more evenly to their Australian dairy farmers, but the money doesn’t have to come out of consumers’ pockets,” said Mr Littleproud.
“Everyone agrees that we want a vibrant and sustainable dairy industry in this country. However, each retailer has to consider how they can play a part in making that happen.
“It will ultimately be up to each retailer to determine how much support they are willing to provide to our farmers.
“We’re losing around 500 dairy farmers a year and this can’t keep going and supermarkets expect to keep stocking Australian milk.
“We don’t want to get into a situation where there aren’t enough dairy farmers for us to have secure domestic milk supply,” he said.
Farm input costs for fodder, water and electricity have continued to increase at the same time as demand for dairy products has been checked due to coronavirus restrictions.
The industry has countered with aggressive campaigns aimed at increasing consumption by urging Australians to buy Australian dairy products.
Celebrity chef Matt Merrin was engaged to front Dairy Australia’s “Buy Australian” campaign in July of this year. Former Brisbane Lions star forward Jonathan Brown was the face of “Healthy Bones Action Week”.
Two family-owned processing companies – Maleny Dairies and Procal Dairies Pty Ltd – joined Australian Owned, a body set up to promote Australian companies and products as part of their contribution to the long-term sustainability of the industry.
All eyes will be focused on the outcome of the Senate Rural and Regional Affairs and Transport References Committee inquiry into the “performance of Australia’s dairy industry and the profitability of Australian dairy farmers since deregulation in 2000”, which is due to be handed down on November 12 this year.
The inquiry, the latest in a series of 10 previous Federal Government and industry reviews over the past 10 years, will look into:
- The ability of Dairy Australia to act independently and support the best interests of both farmers and processors;
- The accuracy of statistical data collected by Dairy Australia and the Australian Bureau of Statistics;
- The funding of Dairy Australia and the extent of its consultation and engagement on the expenditure of levies revenue;
- The merits of tasking the ACCC to investigate how it can regulate the price of milk per litre paid by processors to dairy farmers to ensure a viable dairy industry;
- Alternative approaches to supporting a viable dairy sector;
- The introduction of a mandatory industry code of practice; and
- Any related matters.
Australian Dairy Farmers (ADF) have welcomed the inquiry and noted that Australian dairy had been a competitive major export industry for much of its 200-year history but had seen its share of international markets drop from 16% in the 1990s to 6% today due to increased competition and the payment of government subsidies to our competitors.
While dairy farmers have been improving productivity since 2000, these gains have not been enough to offset the cost of production increases, ADF said in a submission to the inquiry.
“Since 2000, average dairy farm profit has been $22,818 per annum (Department of Agriculture and Water Resources 2018) compared to the national minimum wage of $38,512 per annum (Fair Work Ombudsman 2019).”
The ADF submission said dairy farmers across all states had been receiving consistent increases in the farm gate price since 2000 but these increases had not kept pace with the rising costs of production.
“Across Australia, the average dairy farm has experienced a 71% increase in its farmgate price since 2000 – this compares to a 142% increase in production costs over the same period,” according to ADF.
“The dairy industry has long advocated for the retail fresh milk price to be reflective of these requirements.
“This has been most prominent since the introduction of $1 litre home brand milk by the retailers in 2011.
“A race to the bottom in any sector shifts value from the producer to the consumer.
“Retailers have helped to lower the farmgate price by awarding tenders to processors from outside a region they operate in or at the very least, having them tender in regions they don’t process in.
“This has meant the existing local processors have had to tender lower to retain a contract, competing against a more manufacturing based lower farmgate price processor.”
The ADF identified several key events that had significantly impacted dairy farm profitability since 2000, namely:
- The move by processors to change payment systems to encourage all-year-round production;
- Drought and other climate-linked issues including higher summer temperatures impacting grass growth and cow management, which also incurs higher production costs;
- Increasing costs, for example electricity and inefficiency in the processing sector contributing to Australian dairy products, in particular bulk commodities, being uncompetitive in overseas markets;
- The introduction of aggressive promotion of ‘private label’ or ‘home brand’ products by supermarkets i.e. $1 per litre milk since 2011, which has stripped value out of the dairy supply chain;
- Significant world market price volatility caused by a range of factors including the removal of EU production quotas and EU loss of Russian market access;
- The international dairy price downturn and further price reductions late in the 2015–16 season by Australia’s two largest dairy processors Murray Goulburn and Fonterra Australia; and
- Farmgate price growth not keeping up with the cost of production growth.
In addition to the Senate Inquiry, dairy industry representatives will also be interested in the release of the Industry Dairy Plan (IDP), an industry-led initiative to create a more profitable, confident and united industry and the implementation of the Mandatory Dairy Code of Conduct (DCC) the supervision of the ACCC.
The IDP is supported by Australian Dairy Farmers, Australian Dairy Products Federation, Dairy Australia and Gardiner Dairy Foundation, with former Victorian Premier John Brumby serving as Independent Chair. A draft plan published in December 2019 is currently being finalised in response to industry feedback.
The DDC has mandated clear laws about how farmers and processors are to conduct their business relationship. The code rebalances the bargaining relationship between farmers and processors and prohibits a range of egregious practices that have occurred in the industry in the past.
Under the code, farmers will know the minimum price they will get for their milk over the life of their contract, making it simpler for them to manage their businesses with confidence.
The Australian dairy industry employs over 45,000 people and is represented at the national level by the Australian Dairy Products Federation (ADPF) and Dairy Australia (DA).
Farm numbers have plummeted from over 20,000 in 1980 to just over 5000 enterprises today. Twenty years ago, Queensland had 1500 dairy farms; that figure is down to 300 today.
Despite the dwindling numbers, Australian dairymen produced almost nine billion litres of raw milk in 2018-19, valued at $4.4 billion. This figure was slightly down on the output achieved in 2017 (9.3 billion litres).
About 65% of the nation’s dairy products are sold into the domestic market while 125 Australian companies export just under $3 billion worth of product each year to over 100 countries including China, Japan, Singapore, Malaysia and Indonesia. This positions Australia as the fourth largest dairy exporter with 6% of global trade.
Over 2 billion litres of dairy products mainly in the form of cheese and other products were imported into Australia last financial year.