DFMC recently made representation to the latest Dairy Senate Inquiry. The matter was referred to the Rural and Regional Affairs and Transport References Committee in October 2019 for inquiry and the final report is now set down for November 2020.
The inquiry is into the performance of Australia’s dairy industry and the profitability of Australian dairy farmers since deregulation in 2000, with particular reference to:
- the ability of Dairy Australia to act independently and support the best interests of both farmers and processors;
- the accuracy of statistical data collected by Dairy Australia and the Australian Bureau of Statistics;
- the funding of Dairy Australia and the extent of its consultation and engagement on the expenditure of levies revenue;
- the merits of tasking the ACCC to investigate how it can regulate the price of milk per litre paid by processors to dairy farmers to ensure a viable dairy industry;
- alternative approaches to supporting a viable dairy sector;
- the introduction of a mandatory industry code of practice; and
- any related matters.
The DFMC submission was made in person by Chairman Andrew Burnett and separate contributions from DFMC farmers from far north Queensland James Geraghty and Johnny Gallo. The following is a combined excerpt from Andrew’s submission.
It is DFMC’s view the major retailers have the ability to “loss lead” in some regions on a couple of product lines like milk, and make it up from the other 40,000 or more products lines sold. Further to this the cost of servicing smaller regional retail outlets is clearly much higher than metropolitan areas.
Generic milk now saturates the market with coffee shops, restaurants and school tuckshops using Coles and Woolworths as a wholesaler as it is cheaper to buy milk there than have it delivered. Shelf space, internal restocking and re-ordering policies all influence and manipulate the volume of generic milk that is sold in comparison to branded milk. Is this an abuse of market power, dumping, loss leading?
The dairy industry has been impacted materially from this national retail pricing approach. Acknowledging the different farming systems, farm sizes and regional, climatic issues, equals greater cost of production. Queensland has a farm gate price approximately 15cpl higher than Victoria. When coupled with a large regional footprint driving distribution costs higher, the fresh milk supply chain is not sustainable. The national retail price is actually lower than the cost to supply milk in and processors, and in turn farmers, are losing millions of dollars to stay in this market.
When I read through ACCC guidelines and legislation there is little to no reference to state or regional boundaries or acknowledgment of the difference in markets. It could be suggested that there are different markets for dairy commodities and fresh drinking milk, which has a more regional boundary for markets. The ACCC did find in some regions milk was sold at a loss. I believe that the “test” for dumping, loss leading and the abuse of market power, needs to be carried out on a state by state basis.
The full transcripts are available here.