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House of Assembly - Fifty-Third Parliament, Second Session (53-2)
2016-05-17 Daily Xml
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Dairy Industry

Mr BELL (Mount Gambier) (15:41): Probably not, sir. Dairy farmers in southern Australia have been subject to an unprecedented milk price step-down and clawback of earnings from milk processing companies, led by Murray Goulburn but quickly followed by Fonterra Australia, Lion and others. Australian milk prices are based on the milk fat and protein solid content of milk supplied off farm. Unlike many countries around the world, there is no legislative control over the price milk processing companies pay farmers for their milk, with all prices within the industry set by market forces.

What happened the other week is unprecedented in Australian history, and it will have devastating effects on this industry. To put it in context, Murray Goulburn was offering $5.60 to $6.05 in terms of fixed price as a parameter per kilogram of milk solids. They are now paying $4.75 to $5. People might say, 'Well, so what?' Well, 'so what' is that the cost of production is around $5 a kilogram of milk solid. In terms of this price drop (and this is the kicker a lot of people do not understand), for the last nine months, since July 2015, Murray Goulburn has indicated that it has been overpaying farmers, so farmers now must pay that money back. Having spoken to just one mid-size dairy farmer in my electorate, I note that is a $280,000 bill they are now facing.

If you think about it, if the cost of production is $5 and if they get $4.75, they are getting up every day, working double shifts from four in the morning until four in the afternoon and losing money. It is absolutely outrageous. It is going to lead to some devastating effects, not only for farmers but also on the mental health of their families and communities as a whole. The other kicker in all this—it just gets worse—is that Murray Goulburn shares have crashed. Many farmers invested heavily in Murray Goulburn on the stock market where it peaked at $2.57 some 18 months ago but which is now paying 85¢; so, this is a triple whammy for dairy farmers.

If you had based your revenue on what you were told you were going to be getting, and then had that corrected, then told you have to pay back nine months' worth and then also invested in the Murray Goulburn stocks, you would be in serious trouble. The reality and the truth is that only the most robust farms and farm businesses are going to survive this second enormous financial blow in seven years.

The other financial blow, which many dairy farmers still have not recovered from, is, of course, the global financial crisis, which they were told was a once-in-a-lifetime financial catastrophe—or so they thought. This dairy farmer I am talking about was grappling with a $500,000 debt taken on due to the global financial crisis, and they had only just finished paying that back when now this second one is going to hit.

Unfortunately, dairy farms are dynamic yet cumbersome operations. You cannot just turn things on and off with ease, and it is this point that people in the city need to understand. It takes time to line up all the fundamentals of a dairy operation: correct fodder supplies, major infrastructure, water licences, valuable herds, cows that are calved in the correct sequence and timing for seasonal management, and, of course, continual debt servicing and management.

It is not possible to swing this around quickly or easily just because the price of milk is poor. There are many, many farmers in the South-East of South Australia who are going to go broke. These are second and third generation farmers, and I tell you that, from some of the conversations I have had in my office, I worry that those farmers will not be here in 12 months' time because they feel the debt of three generations and they are feeling like they are a failure. So, we need to do something to support them, and I am here just raising that issue.

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