INDEPENDENT South Australian Senator Nick Xenophon says the retail strategy of major supermarkets selling $1 per litre milk in recent times has “thrown a spear into the heart of so many dairy farmers”.
Senator Xenophon made the stirring statement in additional comments he provided to the Senate Economics References Committee inquiry’s new report into the dairy industry that was released last week.
The Nick Xenophon Team leader has been a leading critic of Coles and Woolworths selling milk at $1 per litre, and raising major concerns about its potential impacts of farm viability, since the campaign first started on Australia day in 2011.
His addition to the Committee’s report cited added comments he and other Senators made - including NSW Nationals Senator John “Wacka” Williams and former NSW Liberal Senator and Junee farmers Bill Heffernan - in another report derived from the Committee’s 2011 inquiry into the impacts of milk pricing, on the dairy industry.
Senator Xenophon said he instigated the 2011 inquiry and did not “resile” from the statements he made in that report.
“Fresh drinking milk is a daily household staple, but the discounting of generic-brand milk to a level that even Woolworths deems 'unsustainable for the Australian dairy industry', has created a situation of looming market failure in the fresh milk market,” the 2011 report said.
“While there may be short-term gain for consumers being able to purchase fresh milk for only $1 per litre, the move to discount generic milk has serious long-term implications.
“It will damage the sustainability of dairy farmers, milk vendors, processors and ultimately supply of fresh milk to Australians.”
The referral for the Committee’s most recent inquiry, into last year’s farm gate pricing claw-backs sparked by processor Murray Goulburn, said the Australian dairy industry was “facing an unprecedented crisis with the retail cost of bottled milk per litre often less than the retail cost of bottled water”.
Senator Xenophon said in his additional comments that the new Committee report was “a good body of work with sensible and pragmatic recommendations flowing from it”.
He said whilst “broadly supporting” its recommendations, “I do not think the Committee has properly captured the devastating effect of Coles and Woolworth's $1 per litre milk price war and the impact it has had on so many in the dairy sector”.
“In the context of a tough world market this loss leader campaign has thrown a spear into the heart of so many dairy farmers,” he said.
“There can be no mistake that $1 per litre milk creates a misleading perception as to the value of milk.
“Under this supermarket concocted regime the retail cost of bottled milk per litre is less than the retail cost of bottled water and that just isn’t right.
“There is no question that the enormous market power of Coles and Woolworths, which, combined, control approximately 80 per cent of Australia's dry packaged grocery market, has allowed them to engage in pricing, procurement and marketing behaviour that significantly disadvantages smaller retailers and, in particular, farmers and processors.
“The effects test changes to competition laws are welcomed but it needs to be followed up with effective access to justice provisions and divesture laws as a last resort remedy in abuse of market power cases.”
In his 20011 report, Senator Xenophon recommended the Competition and Consumer Act 2010 be amended to provide general divestiture powers where the Australian Competition and Consumer Commission could, “breakup” monopolies or dominant companies that engage in conduct that undermines competition.
He also called on the federal government to develop a mandatory industry code of conduct under the Act to deal with relationships between industry participants along the supermarket supply chain.
“Such a code should also include the major supermarket chains,” he said.
The report released last week made 12 recommendations including consideration for the potential need for a mandatory industry code of conduct, via an independent review of how the industry’s new voluntary code is performing, in addressing competition issues, after 12 months.
It also recommended 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.
In his 2011 report, Senator Xenophon said “Throughout this inquiry, it has become apparent that the ACCC feels it is difficult to prove instances of predatory pricing and anti-competitive behaviour”.
“This is due to a lack of transparency regarding the pricing behaviour of the major supermarket chains, as well as between producers and processors,” he said.
Victorian Nationals Senator Bridget McKenzie welcomed last week’s report saying it had “many constructive recommendations” to increase competition in the dairy industry and therefore return to farmers.
“We need a transparent market system, where producers can make decisions with all information in front of them,” she said.
“This hasn't occurred in the past and has resulted in significant damage, economically and socially.
“Our dairy farmers are resilient and innovative, but have needed assistance in light of poor decisions by processors and their boards in the recent past.”
Senator McKenzie said, as chair of the Parliamentary Friends of Cooperatives and Mutuals, she was “heartened” by recommendation nine in the report, to increase support to cooperatives and reduce regulatory barriers.
“The cooperative structure is one that has served the industry well in the past and I contend has the potential to do in the future,” she said.
“Just look over the ditch to the global dairy giant and cooperative, Fonterra.
“The Hammond review into cooops and Mutuals, is with the Treasurer at the moment and I hope that the government’s response to that review will strengthen cooperatives access to capital and other measures to reduce regulatory barriers for producers to use the corporate structure to increase their control in the market and hence their return.
“The work Agriculture and Water Resources Minister Barnaby Joyce has done, with the Agricultural and Competitiveness White paper in this area is significant and should continue post pilot stage.”
Queensland Labor Senator and Committee Chair Chris Ketter said in regards to Murray Goulburn, the report found that responsibility ultimately rested with the executive management team, who appeared to be overly ambitious and self-motivated in their attempts to grow the business.
“This was short sighted, especially for a company operating as a cooperative,” he said.
“The committee considers that the dairy industry benefits from a strong, industry leading cooperative and urges Murray Goulburn to reconsider whether its current capital structure, as partially-listed cooperative, is in its members' best interests.
“In the case of Fonterra, the committee is concerned that the way Fonterra undertook to impose the retrospective step-down without due regard to the impacts this would have on farmers.
“Given that the farm gate milk price has been retrospectively reduced twice in the last decade but only once in the preceding 40 years, there appears to be issues in the current price setting mechanism.
“The committee understands that while processors have made some attempts to rectify contracts and price setting agreements, the committee is concerned that the new dairy code doesn’t strike a fair balance between farmers and processors.”
Farmers welcome report’s findings
Australian Dairy Farmers (ADF) said the report’s release was a positive move towards strengthening the entire dairy value chain and welcomed support for the code of practice
ADF President Terry Richardson said the report’s recommendations would will help improve farmers negotiating powers and contribute further to ensuring there is fairness and transparency throughout the supply chain.
“We have been working with industry partners on establishing solutions to a number of issues within the dairy industry for a long time and are pleased we are finally getting the tools needed to increase transparency and fairness”, he said.
“The ‘effects test’, unfair contracts legislation and Small Business and Family Enterprise Ombudsman, are among the tools we have been advocating for since 2011,” he said.
The National Farmers’ Federation (NFF) said the report had made “sensible and fair” recommendations for the future of Australia’s dairy industry.
“It’s certainly a good start,” NFF CEO Tony Mahar said.
“On face value the recommendations give some direction towards the certainty, transparency and fairness dairy farmers need.”
Mr Mahar said a recommendation for the Australian Competition and Consumer Commission (ACCC) to consider making milk supply contracts subject to unfair contract legislation was “sound”.
“The majority of dairy farmers are largely family operations who can be at a distinct disadvantage when negotiating with the might and force of large processors,” he said.
“When negotiating milk supply contracts, farmers should be afforded the unfair contract term-protections, now enjoyed by other small businesses.”
He also welcomed an independent review of the voluntary code and the report’s recommendation that the ACCC consider how farmers can increase collective bargaining power when determining supply contracts was “bona fide positive”.
“Collective bargaining does work well in New Zealand - however, it will only operate effectively here if there is genuine commitment to equity by farmers and processors,” he said.