Australia's Dairy Industry: Rebuilding Trust and a Fair Market for Farmers
Total Page:16
File Type:pdf, Size:1020Kb
The Senate Economics References Committee Australia's dairy industry: rebuilding trust and a fair market for farmers August 2017 © Commonwealth of Australia 2017 ISBN 978-1-76010-627-0 This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivs 3.0 Australia License. The details of this licence are available on the Creative Commons website: http://creativecommons.org/licenses/by-nc-nd/3.0/au/ Printed by the Senate Printing Unit, Parliament House, Canberra. Senate Economics References Committee Members Senator Chris Ketter (Chair) Queensland, ALP Senator Jane Hume (Deputy Chair) Victoria, LP Senator Sam Dastyari New South Wales, ALP Senator the Hon Ian Macdonald (from 15 February 2017) Queensland, LP Senator Jenny McAllister New South Wales, ALP Senator Nick Xenophon South Australia, NXT Participating members Senator Jonathon Duniam Tasmania, LP Senator Skye Kakoschke-Moore South Australia, NXT Senator Jacqui Lambie Tasmania, JLN Senator Janet Rice Victoria, AG Senator Dean Smith Western Australia, LP Senator Glenn Sterle Western Australia, ALP Former members Senator Cory Bernardi South Australia, AC (from 5 December 2016 to 15 February 2017) Secretariat Mr Mark Fitt, Secretary Mr Alan Raine, Principal Research Officer Ms Leonie Lam, Research Officer (until 30 January 2017) Ms Hannah Dunn, Administrative Officer PO Box 6100 Ph: 02 6277 3540 Parliament House Fax: 02 6277 5719 Canberra ACT 2600 E-mail: [email protected] iii TABLE OF CONTENTS Membership of Committee .............................................................................. iii Abbreviations and acronyms ...........................................................................vii Recommendations .............................................................................................. ix Chapter 1: Introduction ..................................................................................... 1 Conduct of the inquiry ............................................................................................ 2 Background to the inquiry ...................................................................................... 2 Structure of report ................................................................................................... 6 Chapter 2: Challenges facing the dairy industry ............................................. 7 Overview of Australia's dairy industry ................................................................... 7 Regional differences in production matter ........................................................... 11 Relationships with processors are also important ................................................ 13 Comparison with the New Zealand dairy industry ............................................... 15 Chapter 3: Raw milk pricing and supply contracts ...................................... 17 How milk prices are set ........................................................................................ 17 Issues with current contracting practices .............................................................. 23 Chapter 4: The effect of major retailers on the raw milk price ................... 39 Lower dairy prices give consumers choice .......................................................... 39 Wider effects of lower dairy prices ...................................................................... 41 Committee view .................................................................................................... 49 Chapter 5: Retrospective step-downs in 2015–16 milk pricing .................... 51 Murray Goulburn's strategic change and capital restructure ................................ 51 Fonterra's milk pricing structure in the Southern Region .................................... 53 Events leading to the milk price step-down in 2015–16 ...................................... 54 Views on the retrospective price step-downs ....................................................... 56 Support for affected farmers ................................................................................. 61 Committee view .................................................................................................... 66 v Chapter 6: Government needs to play the right role ..................................... 69 Direct government intervention—milk levies and floor prices ............................ 69 Encouraging a level playing field ......................................................................... 71 Encouraging expansion in dairy cooperatives ...................................................... 76 Monitoring and enforcement by regulatory agencies ........................................... 78 Dairy Commodity Price Index.............................................................................. 80 Role of Dairy Australia ........................................................................................ 82 Dissenting Report by Coalition Senators ........................................................ 85 Government Dairy Support Package .................................................................... 85 Dairy Industry Awareness Campaign ................................................................... 86 Small Business Access to Justice ......................................................................... 86 Dairy Commodity Price Index.............................................................................. 86 Independent Review of the Dairy Services Levy and Dairy Australia ................ 87 Additional Comments by Senator Nick Xenophon ........................................ 89 Attachment 1 ........................................................................................................ 91 Appendix 1 ....................................................................................................... 107 Submissions ........................................................................................................ 107 Additional information ....................................................................................... 108 Answers to questions on notice .......................................................................... 108 Tabled Documents .............................................................................................. 109 Appendix 2: Public hearings .......................................................................... 111 Appendix 3: Australian Dairy Industry Council Code of Practice ............ 115 vi Abbreviations and acronyms ACCC Australian Competition and Consumer Commission ACL Australian Consumer Law ASIC Australian Securities and Investments Commission ASBFEO Australian Small Business and Family Enterprise Ombudsman BSC Bonlac Supply Company FMP farm gate milk price kgMS kilogram of Milk Solids QDO Queensland Dairyfarmers' Organisation MG Murray Goulburn MSSP Milk Supply Support Package NPAT Net Profit After Tax PIRSA Primary Industries and Regions South Australia PMCBG Premium Milk Collective Bargaining Group PSM Profit Sharing Mechanism SSO Supplier Share Offer UDV United Dairyfarmers' of Victoria vii Recommendations Recommendation 1 3.102 The committee recommends that the Australian Competition and Consumer Commission (ACCC), as part of its inquiry into the Australian dairy industry, evaluate the extent to which the code of conduct will reduce power imbalances between farmers and processors, and recommend improvements to the code may better achieve this outcome. Any outcomes from the ACCC inquiry should be incorporated in the proposed review of the code after its first year of operation. Recommendation 2 3.103 The committee recommends that the ACCC consider how collective bargaining in the dairy industry could be strengthened to enable these provisions to be more widely used and assist in addressing the power imbalance. Recommendation 3 3.104 The committee recommends that any review of the code of conduct for contractual relationships should be undertaken by an independent party that can objectively assess whether the code is working as intended and consider if a mandatory code would be more appropriate. Recommendation 4 4.52 The committee recommends that representative organisations of the dairy industry, together with retailers, develop an education campaign to promote awareness about the dairy industry so consumers can make informed choices when purchasing dairy products. Recommendation 5 5.72 The committee recommends that dairy processors set opening prices conservatively so that any downward pressure from market forces will not result in retrospective price step-downs that have devastating impacts on dairy farmers. Recommendation 6 5.73 The committee considers that an independent review of the government's dairy support package be undertaken to determine whether it has been effective in improving outcomes for affected dairy farmers and whether it has delivered value for money. ix Recommendation 7 6.26 The committee recommends that the ACCC specifically address the issue of unfair contract terms within the dairy industry and provide guidance as to whether milk supply contracts, in-principle, fall under the scope of the unfair contract term laws. Further, the ACCC should provide guidance as to how milk supply agreements and contracts could be developed under a code of conduct for contractual relationships to be compliant with unfair contract term laws. Recommendation 8 6.37 The committee recommends that the House of Representatives pass the Competition and Consumer Amendment