Milk: cheaper than water. Photograph: Dave Thompson/PA
What is wrong with this picture? Domestic and international demand for dairy produce is booming, but the price of Australian milk has declined so far that it is now cheaper than water. The dairy industry has been deregulated, but our dairy farmers don’t benefit from rising prices. Instead of being protected through tariffs, farmers are now prevented by regulation from selling directly to consumers, and they can face substantial penalty payments if they change the milk factory they do business with.
On top of this, all dairy farmers have to pay a levy to run the national industry body, Dairy Australia. They can’t opt out of this as it is taken out of their milk cheques by the milk processors. Last year, the levy on farmers raised over $30m – amounting to about $7,000 for the average farmer. Many would argue that the main beneficiaries of Dairy Australia’s activities are the dairy processors (who actually control the selection of board members), while they make no financial contribution at all. The government contributes around $19m per year, and you would have thought that this might have led to significant questions about value for money – amounting to over half a billion dollars over the past 10 years. Similar criticisms are made by farmers about their state representative bodies, which are funded through yet another levy (another $2,000 or so). These bodies have recently bought into arguments about corporate takeovers without consulting their members, seemingly in conflict with farmers’ interests.
That contribution of $9,000 for the average farm particularly hurts when viewed against declining farm incomes. As milk prices have been forced down, many farmers have had to borrow against the equity of their farms, but often without sufficient income to meet their repayment obligations. As farm values and incomes have fallen, the banks have tightened the screws. Many farming families are now unable to pay for hired help, so that young and old farming men and women are putting in 16 hour days and still do not make ends meet.
A young child holds up a sign along with hundreds of Tasmanian dairymen in a 2009 mobile protest against milk price cuts. Photograph: /AAP/Dale CummingIn South West Victoria, which produces about a quarter of Australia’s milk, net farm incomes fell from over $195,000 per year in 2010-11 to just over $51,000 in 2012/13, with 21% of farms running at an absolute loss (negative cash flow). Over half of all dairy farmers have increased their borrowings or deferred debt repayments over the past year to cope with this crisis. Industry confidence has plummeted, and in some regions as many as 30% of farmers expect to have quit farming within the next five years. This is not surprising, as one piece of independent research concluded that on present trends, the average net farm income in 2017 would be zero.
Not surprisingly, milk production is falling as farmers cull their herds, sell their farms (sometimes handing the keys to the bank) or tragically take their own lives. Milk processors are already experiencing shortages of supply, and this situation can be expected to worsen. However, even this isn’t leading to an increase in the farmgate price, with processors being locked into long term contracts for cheap milk. Low domestic prices are driving up demand for fresh milk but there is no supply to satisfy it, meaning that even less is available for export.
What a contrast with the situation in New Zealand – their farmers receive around 50% more per litre for their milk, in an environment with much lower production costs. Milk production has doubled there over the past 10 years, with the result that the lucrative export markets in Asia are being gobbled up by the New Zealanders, while Australia is being left out in the cold.
You would have thought that the government would be concerned about this. However if you look at the industry reports prepared by Dairy Australia and others, you would get the impression that everything was rosy. There are volumes written about how tinkering at the edges can slightly increase production efficiency, but almost nothing about how to resolve the main problem of farmgate price. Farmers are gobsmacked by the seeming ignorance of their plight, and the fact that industry stakeholders have forgotten that milk actually comes from cows. Many of the industry reports assume that as farmers quit the industry, farms will simply consolidate and become more efficient. Ask the cows about this – a heavily laden Daisy the cow might have to double the distance she walks to get milked twice a day, impacting on both her milk yield and her productive life. Ask the family farmers who see the amalgamated corporate farm next door go bust, with the fields left abandoned.
And ask the farmers about how things got so bad. Most of the blame is put on the farmgate price, which is now about 50% lower than that needed to make dairy farming profitable. Farmers’ anger is well demonstrated by the several hundred people turning up at Farmer Power meetings held to air their concerns – and at the mental health workshops convened to help them deal with their stress. There has even been some discussion about withdrawing from membership of the various industry groups in protest at the lack of action, even if they can’t withhold the compulsory levy.
Farmer Power has a clear mandate from the dairy farmers attending its meetings to lobby for substantial change in the way the industry is managed. Their concerns include the need to review the way that the various industry bodies do or do not serve farmers’ interests, and an investigation into the other restrictive practices that are crippling their end of the food chain.
It is calling on the new minister for agriculture Barnaby Joyce to require a fully independent review of Dairy Australia and the state industry bodies to ensure that both farmers and tax payers receive good value for their substantial investments. Farmer Power is also calling for a review into the full range of restrictive practices within the dairy industry that are hurting our dairy farmers.
Published in The Guardian: http://www.theguardian.com/commentisfree/2013/dec/17/milk-is-now-cheaper-than-water-dairy-farmers-deserve-better