John Dahlsen: Why senators need to take the decline of the Australian dairy industry seriously

Australia’s leaders have the opportunity to reverse the decline of the nation’s dairy industry, writes John Dahlsen. So why aren’t they seizing it?

Veteran businessman John Dahlsen explains his plans for the dairy sector, a decade after the introduction of the $1 a litre milk scheme. PICTURE: ZOE PHILLIPS

IN the light of the findings of the Dairy Senate Inquiry, more particularly the minority findings of government members senators Susan McDonald and Gerard Rennick,, it is unlikely that sufficient recommendations will be implemented to materially solve the dairy crisis.

The minority senators, who probably reflect the views of Federal Agriculture Minister David Littleproud, do not favour a mandatory levy or as I call it, a Fair Transfer Payment.

The senators believe it will slow investment in innovation and encourage milk production in lower cost dairy regions to the disadvantage of high-cost regions, such as Queensland.

On the contrary, it will advance innovation, as more cash flow will be available to invest in such things as better farming systems and capital equipment.

The extra revenue will not distort but fractionalize inputs costs, whether they be controlled or non-controlled.

It is curious that Senator Matthew Canavan, who has great experience with the productivity commissions, did not join in with the minority recommendations.

Other agricultural producers are likely to support the measure. It is sheer speculation to suggest the extra revenue would encourage more production in lower cost areas.

In any event the lower-cost dairy farms also get the uplift in revenue.

To focus on Queensland is akin to going back to the old days of regulation.

My Fair Transfer Payment of 40 cents with around 13 cents per litre of milk production going to dairy farmers and a small amount set aside to fund dairy advocacy.

Professor Gary Sampson, a former director of the World Trade Organisation will vouch for the opportunity.

The minority senate position, as indeed the position of the senate majority, is not sufficiently focused on the fundamental issue.

Australian milk prices are some of the lowest in the world. There is a supermarket duopoly and a material imbalance of power between the retailers and the processors, and the processors and the dairy farmers. The natural phenomenon flowing from limited choice, disadvantages dairy farmers.

No amount of behaviour improvements will change that. The market, in the words of the father of liberalism, Adam Smith, has failed and the government must intervene.

The Federal Government has intervened in other markets, so why not dairy?

The inquiry has come up with some good recommendations, but they are all micro and behavioural and should be encouraged, recognizing that they will not solve the structural defect. Codes of behaviour are by necessity behavioural and are difficult to monitor and enforce and do not affect structure.

There should be caution with one recommendation that Dairy Australia establish dairy farmer costs by region.

DA, with the involvement of processors, has a fundamental conflict and the work should be undertaken by someone independent.

Finally, it is clear, that with the minority senators’ recommendations, the Agriculture Minister will not move, and any suggestion that the competition law can be changed by including harmful effects tests is naive.

On the current trajectory it could take a further 10 years for any meaningful reform just like the 10 years for the $1 milk campaign.

Unfortunately for dairy farmers neither the Agriculture Minister, nor the National Party leader, Michael McCormack, are dairy farmers.

They do not have the determination and courage to challenge other Coalition ministers, particularly at a time when the World Trade Organisation rules are irrelevant no-one is abiding by them but a handful of companies like Australia.

There is a huge opportunity for the National Party to take a whole new position in relation to our agricultural trade policies and improving the lot of dairy farmers who are suffering more than other agricultural producers.

If exercised it would do a great deal to improve the lot of dairy farmers.

- Businessman John Dahlsen is chairman of the JC Dahlsen hardware enterprise. He has previously served as chairman of both Herald and Weekly Times as well as Woolworths.