Structural change the key to fixing power imbalance
Australia’s dairy sector is facing an existential crisis, but those in power aren’t paying attention, writes John Dahlsen.
IT IS 10 years since the $1 a litre milk debacle which has severely damaged the dairy sector. Based on the current trajectory of activities we will still be talking about it in another 10 years, but with a sector seriously contracted. This also poses problems for the processors as they need volume to be economic.
Why? There is a serious imbalance of power in the dairy sector supply chain. Five thousand-odd dairy farmers sell milk to a handful of processors, with those processors selling to a retail duopoly. The natural phenomena that flows from this limited choice means the dairy farmers will always be severely disadvantaged.
This imbalance exists in other agricultural sectors and you don’t need an Australian Competition and Consumer Commission inquiry to establish and see the many examples of abuse.
The ACCC and Agriculture Minister’s confidence that codes of conduct both dairy specific and now more widely in the grocery code will solve the problem, is misplaced.
Codes of conduct are behavioural only and will never solve the structural imbalance of power.
I am a strong proponent of free trade subject to community norms, as articulated by (founder of liberalism) Adam Smith. The reality is the dairy market has failed and we need structural intervention; Adam Smith would agree with this.
Apart from improving the codes of conduct the ACCC has recommended that government review further behavioural provisions of harmful effect that exist in the US and UK.
The ACCC give no details of these provisions or their effectiveness. To introduce these provisions into competition law would take years to resolve because they go to the fundamentals upon which supermarkets and others operate.
When the Harper Report Committee recommended that Section 46 be amended to prove effect only and not intent, this caused a political storm.
This was a minor amendment but a massive effort was required to achieve the change. It was only a fortuitous political situation that enabled the change to be made — a story in itself.
In any event, the ACCC recommendations — essentially behavioural — will not solve the structural defect and the need for direct intervention.
Great political will is needed to overcome the huge resistance and campaigns by the big end of town and the Business Council of Australia.
This requires passion, but is it there?
It is noteworthy that neither the Agriculture Minister, the leader of the National Party (who is Deputy Prime Minister), nor the Prime Minister, are farmers.
Historically the National Party had focused on people like Black Jack McEwan and the trio of Anthony, Sinclair and Nixon who were farmers and worked with Prime Minister Malcolm Fraser, also a passionate farmer.
With a limited number of farmers in the National Party, you wonder whether political will exists to cut through and intervene in a failing market.
Each agricultural commodity has a different dynamic and you cannot articulate overall intervention policies. By starting with dairy, it will be easier to address problems in the other sectors, but it must be based on structural change not the limited concept of behavioural change, which is difficult to establish in the court system.
● John Dahlsen is a former chairmanof Woolworths and Herald and Weekly Times
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