Aussie dairy disaster offers lessons

The author argues that it is wrong to favourably compare Australia’s decision to deregulate its dairy industry in 2001 with what some claim is Canada’s misguided intent to maintain its regulated system of supply management in the sector.  |  File photo

A recent article in The Western Producer by Alan Oxley, Dan Leroy and Jon Berry presented the Australian decision to deregulate its dairy industry in 2001.

The three favourably compare that policy with what they claim is Canada’s misguided intent to maintain its regulated system of supply management in the sector. They could not be more wrong.

Australian dairy has not thrived but has rather experienced difficult times. As one Australian journalist put it in May 2016 when referring to the whole deregulation exercise, “the free market had arrived, and dairy farmers are now feeling its caustic downside.”

I have interviewed about 50 Australian dairy farmers in the states of Queensland, Tasmania and Victoria and most are not happy with their lot. One of them, told me that they “farm on the margins.” Another noted, following the Murray Goulburn collapse, that “we will wait a see and hang on for dear life.”

These producers reflect the increasing perception among many dairy farmers that theirs is a losing industry. The annual national survey of about 800 farmers from across Australia showed that more than half were not confident about their future. A recent ABC-Rural report, Dairy Exit Set to Increase as Farmers Continue to Lose Confidence, highlighted this point.

Even the Australian government has been forced to act, providing an A$550 million support package in the face of intractable problems.

Critically, the amount of milk produced has dropped precipitously over the period from 2002-16 by about three billion litres annually, while the Australian share of the export market has also been halved, from about 10 percent of total global production to five percent.

Nor has the global market panned out the way it was forecast. Promised gold from the Chinese for their milk, those Australian dairy farmers that bought into the dream have had to settle for copper.

Oxley, Leroy and Berry also note that consumers have had lower prices from deregulation. That is true, but it has come at a terrible price for dairy farmers as the two big, powerful supermarket chains, Coles and Woolworths, unilaterally reduced the price paid to farmers in 2011. That has proved to be unsustainable for farmers.

Nor are consumers necessarily on board with this. Moved by stories of intense hardship on the farm, there has been a consumer revolt against cheap milk. In purchasing more expensive supermarket dairy, they hope that more money will find its way into dairy farmer pockets. However, that will not happen given the Australian system.

Even the Australian Senate has weighed in, commissioning a report published last summer. Senators were concerned with the “unprecedented crisis” facing the dairy industry and that “the livelihoods of up to 40 percent of Australian dairy farmers are under threat because of imposed, retrospective debt, helped by unclear, inconsistent milk pricing contracts with ambiguous conditions.”

It also points out that “Australian rural and regional communities face losing millions of dollars and thousands of jobs if a fair, long-term solution to Australia’s dairy crisis is not found.”

How have Oxley, Leroy and Berry gotten it so wrong? They claim that the reforms following on from the deregulation exercise “have been unambiguously positive.” Nowhere does the data support that result. What has followed deregulation is a lower Australian share of the international market, slashed volumes of milk produced in the country, rising levels of dairy farmer debt and what has become an ongoing exodus from the sector.

When all of this is added up, it demonstrates a system badly in need of repair. That country has nothing to teach Canadian dairy farmers, other than what to avoid.

Bruce Muirhead is with Ontario’s University of Waterloo, where he is associate vice-president for research oversight and analysis, professor of history and the Egg Farmers of Canada public policy chair.

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