Case Study: Stampede Predicted as Milk Price Control Ends

by Cathy Bolt

A predicted exodus of thousands of farmers from the diary industry following the onset of total price deregulation on the weekend is under way, with 50 NSW farms already reported to have opted out of milk production and hundreds more expected to follow.

The president of the NSW Farmers Association, Mr Reg Smith, said 700 of the State’s 1,800 dairy farmers ultimately were likely to quite the industry because of the dramatic fall in price whick took effect of July 1^st.

The national removal of control on the farmgate price of market milk – that used to produce fresh liquid milk rather than in manufacturing – has had an immediate impact, with processors dropping their prices in south-eastern Australia to as low as 28 c a liter compare with the previous level of above 50 c.

That puts them only a few cents above the deregulate, export-driven manufacturing price.

The president of the Australian Diary Industry Council, Mr Pat Rowley, yesterday urged farmers to make the most of a 1.78 billion adjustment package struck last September with the Federal Government, in the face of continuing hostility toward deregulation among his constituency.

He said the package - to be founded by an 11c a liter retail levy for about eight years – was the maximum the industry could have negotiated.

The alternative would have been ‘cold turkey’ deregulation, given the decision by Victoria, Australia’s dominant milk producing and exporting State, to make the move unilaterally from 1 anyway.

“I just urge the industry to make the most of it,” he said. “Here is a golden opportunity to restructure.”

Mr Rowley said some farmers seemed to view the big adjustment package – which averages around $130,000 a farmer – as a “God-given right”. But he said it was a hard-won achievement when the Government was super-sensitive about retail prices given the simultaneous introduction of the GST. “I get a little annoyed with people who think this is a part of the furniture and they are entitled to in,” he said.

The drop in farmgate price has also had an immediate effect on wholesale milk prices.

National Food Ltd, which owns the Pura brand, has announced it will drop its wholesale price by 15c a liter in NSW.

Allowing for the 11c retail levy, that leaves some room for higher retail margins or lower consumer price.

The impact of deregulation would be hardest felt in NSW, Queenland and Western Australia where a much higher proportion of farmers’ production had been earning the market milk premium.

In Victoria, paradoxically, many diary farmers are facing a more profitable season.

A recovery in export market price over the past several months and the low Australian dollar have prompted a sharp increase in payment for manufacturing milk, from which Victorian farmers earn most or all of their income.

Victorian-based manufacturing and exporting co-operative, Murray Goulburn, last week announced a 17 percent lift in its opening prices of the new season to its supliers.

Australian Finnancial Review

4 July 2000

Copyright 2005 Pearson Education Australia

Case Study: Stampede Predicted as Milk Price Control Ends