WA dairy farming under pressure

28 February, 2012

It appears that the market is failing Western Australian dairy farmers. Last week, 150,000 litres of milk was trucked into the state from South Australia.

As a dairy farmer, I know that WA dairy farmers are certainly not being offered South Australian prices plus the cost of cartage for their milk. And now WA consumers face the very real prospect of running out of fresh milk as a result of the supermarket price wars and the pressure their market share places on milk manufacturers and producers.

In fact, extreme market pressure is being applied to manufacturers and producers through a combination of low prices and house brand labels. Coles and Woolworths are laughing all the way to the bank as they increase their control and absolute dominance over total food sales in Australia!

I am also told that to meet supermarket contracts in South Australia, milk is being trucked-you want to call it leapfrogged-from Victoria. I have got no doubt that processors are taking money out of their margins to pay the cartage to meet their supermarket contracts at a direct cost to the ultimate price takers, the dairy farmers who produce fresh milk, perhaps the most perishable product in the agricultural sector-a supply chain vulnerability totally overlooked by the ACCC and this Labor government.

There has been no response to the Economics References Committee Milking for all it is worth report that looked at matters in the dairy industry. I wonder whether Coles and Woolworths will pay more for milk refrigeration and the increased cost of diesel-trucking the milk from state to state-when the carbon tax hits. I wonder if there will be extra in those contracts. This is an email I received from dairy industry service provider Dean Maughan:

WA consumers will be running out of fresh milk. Hard working and highly efficient farmers can’t pay their bills and are as disheartened as I have seen them.

The export of WA heifers is an all time high as farmers sell heifers to pay basic bills. The solution to our future milk supply is being sold to China.

Please do not believe that the importation of milk in WA is a short term, one off thing. If it is happening now, it will be much worse next year and for a longer period of time. This is because the livestock have been and continue to be sold to pay basic bills. Without more livestock, there will not be more milk

Farmers are not feeding their cows correctly now because of a lack of money. Keep in mind that the demand for fresh milk in WA is growing due to population increase at this time of declining supply.

The actual supply of milk is down by 16 million litres in seven months in WA. Do not forget that milk is an essential food, particularly for babies and children.

As Australians, we need a geographically diverse dairy industry in this country-a country of climatic extremes with the seven-plus years of drought in Victoria, followed by severe floods. A geographically diverse dairy industry manages these risks to fresh milk production.

Approximately 96 per cent of the Western Australian dairy industry is located in the south-west region of WA-the majority are in my electorate. Our farmers, I am proud to say, are amongst the world’s most efficient producers of high quality milk.

However, many Australian dairy farmers are losing money and many others are making the equivalent of the dole. Yet, we are expecting people to work under these conditions and provide us with an essential food that is the best quality in the world. One couple wrote to me and said, in part:

If you have any further doubts about the debilitating financial position we are currently experiencing as a direct result of farm gate milk prices, please feel free to contact our local Commonwealth bank manager who will be happy to give you a full indication of the financial pressures of local dairy farmers.

They concluded by saying:

I thank you for your time and trust that this matter will no longer be ignored, as dairy farmers are relying on your assistance to bring about some drastic changes to the industry so we can continue to provide fresh local milk to Western Australian families.

How is the market failing milk producers? Currently there is a shortage and milk processors in WA cannot get enough fresh milk to meet their contract quotas. Basic economics acknowledges that if the free market was working properly this should mean a price rise to producers to stimulate growth in production. Has this occurred? No.

The price being offered to producers for their milk is not sufficient to drive increased production. It is not sufficient to raise capital and to grow earnings because it is not sufficient to grow milk volumes. Western Australian milk processors are not raising the price they pay farmers to stimulate milk production as the free market should dictate.

Instead, they have been trucking in milk from the eastern states. This is because the supermarket duopoly in Australia dictates the price of milk to processors, who are left with no capacity to pay Australian dairy farmers adequately for their product. This is driving good farmers out of the industry. (Time expired)