Dairy deregulation hit farmers: Keogh

Mr Keogh said commercial arrangements in the sector did not appear to have evolved, to reflect the changes that occurred as a result of the shake up.

“Where they have evolved, they have evolved in a way that seems to confer greater risk and greater disadvantage on farmers,” Mr Keogh said.

Mr Keogh was speaking at the United Dairyfarmers conference, in Melbourne, about the Australian Competition and Consumer Commission’s (ACCC) dairy inquiry, ordered by the Federal Treasurer, Scott Morrison.

He said more than 600 people had attended eight forums, one of which was held in each state.

Mr Keogh said the powers conferred on the inquiry were quite extensive.

“The powers available to the ACCC, in the dairy inquiry, are substantially greater than was the case during our recent beef marketing inquiry,” Mr Keogh said.

Dairy processors and supermarkets had responded in a timely and appropriate manner.

“That has given the ACCC a trove of documents that will enable quite detailed understandings to be developed of the margins, throughout the supply chain, of $1 milk and $6 cheese, the nature of the contracts between dairy processors and the major retailers and the nature of contracts between the major processors and dairyfarmers,” he said.

Some of the key issues being raised included value-chain analysis.

“There has been considerable concern among dairyfarmers that the pricing of private label products erodes dairy and farm income,” Mr Keogh said.

Processors had differing views, with some saying margins were tight.

Others saw value in the milk price they were able to pay, the volume commitment they were able to obtain through their processing structure and shelf space for branded products.

Processors argued competition for milk was intensifying, as the pool declined.

Farmers were showing an increasing willingness to shift between companies to secure better financial returns.

But they had raised concerns about barriers to switching, including the use of exclusive and overlapping supply contracts and bonuses and step ups, which were not received if a farmer left a processor.

Farmers had also spoken about a lack of clarity around termination cost, penalties and repayments, Mr Keogh said.

Milk pricing offers were also extremely complex.

“An overly complex pricing offer, can, in some circumstances amount to almost becoming anti-competitive,” Mr Keogh said.

“Another consistent concern among farmers was trading of raw milk, amongst processors, and whether, in fact, this reduces competition for milk, at the farmgate in some regions.

“Certainly the ACCC is paying quite particular attention to the potential for milk swaps, between particular processors, to harm competition.”

Most of the information received, to date, by the ACCC had been on farmer-processor contracts, although processor-supermarket contracts would also be examined.