Senate inquiry rejects royal commission but backs investigation of minimum farmgate price

The inquiry into the Performance of Australia's dairy industry and the profitability of Australian dairy farmers since deregulation in 2000 handed down its findings on March 19.

During the inquiry, the Queensland Dairyfarmers' Organisation, Farmer Power and Dairy Connect backed calls for a royal commission into the long-term viability of the dairy industry.

But the senate committee rejected the call.

"The committee is sympathetic to the views of submitters that a royal commission may shed further light on the actions of processors and supermarkets in wielding their market power to offer low prices to dairy farmers," it said.

"However, given the dairy industry and perishable agricultural goods supply chains have been the subject of two recent Australian Competition and Consumer Commission (ACCC) inquiries, the committee does not support a royal commission into the dairy industry at this time."

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The committee backed a further investigation into setting a mandatory minimum farmgate price for milk in each dairy region.

It recommended the ACCC be tasked with investigating this.

But it noted the reservations expressed by some submitters to the inquiry about government regulation.

"(The committee) agrees that such a scheme would need to be carefully considered to avoid negative effects on farmers in higher production cost regions and the industry's export competitiveness," it said.

"However the committee agrees with the views of a number of submitters that all options should be fully explored."

The Liberal and National Party members on the committee offered additional comments on the minimum price proposal, suggesting it would struggle to get government support.

They noted the statement that a minimum price would diminish incentives to innovate and improve productivity across the supply chain and thereby reduce profitability and international competitiveness.

"Additionally, government members note that despite the extensive inquiry conducted by the ACCC into the dairy industry, with its final report published April 2018, no recommendation was made regarding the implementation of a mandatory minimum farmgate price for milk at a national level, or by individual dairy region," the government members said.

The committee also addressed proposals for a retail levy to be applied to milk to support dairy farmers.

It recommended that the government consult with industry stakeholders to investigate a levy

"The committee agrees with the view expressed by the ACCC and many other submitters to the inquiry that market imbalance between farmers, producers and retailers is the core issue affecting the performance and profitability of the Australian dairy industry," it said.

"While the mandatory dairy code goes some way to ensuring price security and fairer contract provisions in milk supply contracts for dairy farmers, the effect on increasing farmgate prices to ensure the viability of farm businesses is less certain.

"The committee considers that the industry would benefit from instituting temporary measures to support dairy farmers until long-term structural changes can be made.

"A retail levy allows consumers to make purchasing decisions that support farmers without creating potentially market-distorting conditions while further investigations take place on the feasibility of introducing competition reforms and a floor price on milk.

"To this end, the committee calls on the government to investigate options and mechanisms to support farmers as an interim measure through the application of a retail levy."

The senate inquiry also addressed the vexed issue of processor involvement in and funding of Dairy Australia.

It recommended that processors be required to pay a levy to fund Dairy Australia.

The senate inquiry made 14 recommendations:

Recommendation 1: The committee recommends that the department requires that Dairy Australia increase its research, development and extension activities into tropical and subtropical dairy regions.

Recommendation 2: The committee recommends that the government amend the Primary Industries (Excise) Levies Act 1999 to require processors to pay a levy to fund Dairy Australia.

Recommendation 3: The committee recommends that the government make the Food and Grocery Code of Conduct a mandatory code under the Competition and Consumer Act.

Recommendation 4: The committee recommends that the government investigate price discrepancies between exclusive and non-exclusive milk supply contracts, processors circumventing collective bargaining groups, and the fairness of pricing for multi-year contracts.

Recommendation 5: The committee recommends that the government in its 12-month review of the dairy code of conduct give consideration to amending the code of conduct to require that:

Recommendation 6: The committee recommends that the government produce and distribute information for farmers on the bargaining advantages afforded by the code of conduct to assist in their negotiations with processors.

Recommendation 7: The committee recommends that the government introduces provisions for the ethical supply of milk to the Food and Grocery Code aimed at ensuring that supermarkets and their suppliers buy milk at a price that exceeds the regional cost of production.

Recommendation 8: The committee recommends that the government reforms the competition framework to make unconscionable conduct provisions in Australian Consumer Law more accessible to farmers, and to incorporate the principle of fairness into contractual dealings between supermarkets, processors and farmers.

Recommendation 9: The committee recommends that the government expand the representative sample of statistical information collected by Dairy Australia so that it better represents the population of Australian dairy farms.

Recommendation 10: The committee recommends that the government maintain a single authoritative measure of the cost of production of milk for the eight regional milk districts.

Recommendation 11: The committee recommends that the government consider approaches to improve the timely provision of milk production data to Dairy Australia by processors.

Recommendation 12: The committee recommends that the government consider approaches to enhance the information processors provide Dairy Australia regarding the locations in which they source their milk.

Recommendation 13: The committee recommends that the ACCC be tasked with investigating a mandatory minimum farm gate price for milk in each dairy region.

Recommendation 14: The committee recommends that the government consult with industry stakeholders to investigate a retail sales levy that would increase returns to farmers.

NSW dairy lobby group Dairy Connect said it was disappointed that its calls for a royal commission were rejected.

"While Dairy Connect is disappointed at this and we do not agree with this view, we will continue to advocate for an outcome that ensures that the appropriate recommendations put forward by the majority of the senate committee are implemented," its chief executive officer Shaughn Morgan said.

"The recommendations, and the suggested amendments by the government senators, have been put forward to provide a platform to continue to grow the national dairy industry.

"Dairy Connect hopes that the majority of the recommendations will attract bipartisan support within federal parliament after considered discussion and debate.

"After 10 major reports into the dairy industry since 2010, the national dairy industry remains at a crossroads and we must ensure that the dairy value-chain works cohesively to act in the best interests of the entire Australian dairy industry. "

Dairy Connect president Graham Forbes welcomed the recommendations to enhance the mandatory Dairy Code of Conduct and to make the Food and Grocery Code of Conduct that applies to supermarkets mandatory.

He also welcomed the investigation into a mandatory minimum farmgate price for milk in each dairy region.

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