The milk supply chain involves farmers selling their product to dairy processors who process and package the product. Then supermarkets buy the packaged milk from the processors (both private label and branded products) and then sell it to consumers.
The Australian Competition and Consumer Commission (ACCC) handed down a report in April that found that farmers have little bargaining power and are thus price-takers in this supply chain.
The power imbalances are in two stages – between dairy farmers and processors, and between processors and retailers.
The 200 page report describes a litany of anti-competitive behaviour, as well as simply aggressive business practices that result from a supermarket duopoly. The milk processors also flex their muscle against the dairy farmers, although it’s patchy. For example, in Gippsland there 15 or so processors operating in a reasonably competitive regional market.
Anyway, the ACCC basically recommended improved transparency and allocation of risk in the commercial relationship between the processors and farmers.
To this end, it recommended a mandatory code of conduct that would basically establish rules and processes so that the various segments of the industry would behave themselves.
The problem with the above approach is that such rules break down over time, and the bad guys revert to their predatory behaviour.
Addressing the fundamental problem
The only true way of addressing the problem, in my humble opinion, is to help the dairy farmers build their collective capability and strengthen their market position. This is not covered in the ACCC report because it was outside its terms of reference.
How can dairy farmers’ market position be strengthened?
There are at least four ways:
- nurturing of new forms of collaborative mechanisms to help farmers bargain together to achieve a better farmgate milk price. The old cooperative model has probably had its day (too slow and cumbersome) but techniques that unleash innovation from clusters of gazelle-like companies are timely
- investment in value-adding areas like cheese, yoghurt, baby formula and dairy health products. This unshackles dairy farmers from reliance on milk sales. Modest federal/state assistance for such investment is justified given the market abuse that has led to the current circumstances. Assistance should however be restricted to groups of collaborating companies rather than
- individual companies
- international alliances to tap investment and market access in emerging dairy product markets. This can be done at a region-to-region level, and Austrade could be assigned roles in this work and
- local councils and RDA Committees taking an interest. Why? Dairy farmers are the heart-and-soul of many regions, and there are significant wealth creation opportunities and inter-industry relationships e.g. tourism, engineering, health.
The role of councils is of potentially great importance. They could be helping to lobby federal/state governments, raising community awareness of their local dairy industry, and providing rate holidays for new productive capacity.
We plan to put specific proposals to government. Please contact us if you’d like to join in.
30 minute cities and a national chief planner?
Infrastructure Australia, our infrastructure watchdog, has savaged a Parliamentary Committee that has proposed lowering the discount rate on infrastructure investment from seven to four percent, effectively adding millions of dollars in future value to projects that would otherwise be considered of marginal value.
Infrastructure Australia’s acting chief executive officer, Anna Chau, said that reducing the discount rate to four percent would be a form of “intergenerational theft” because it reportedly risks saddling the economy with C-grade investments.
She said, “We wouldn’t do this for kids in our schools, just as we wouldn’t lower the standards in our hospitals, so why should we do it for our major infrastructure projects?”
This is pretty courageous hyperbole from a bureaucrat, but good on her for speaking her mind!
But the committee’s 476 page report did back the idea of a national population plan, and a national chief planner to drive regional infrastructure and settlement.
This latter could be valuable. Think about it – a person or agency that provides a holistic overview of how the pieces fit together. The Parliamentary Committee also recommended prioritising 30 minute cities, and establishing “value capture” (private funding of infrastructure in exchange for property) as a fundamental principle.
These recommendations are worthy of further consideration.
If your council has a view, take it up with your local federal member in the first instance.
Calls to cut the seven percent discount rate have been backed by the Grattan Institute and the New South Wales Business Chamber because of the current low interest rate environment.
In any event, Infrastructure Australia is not the sole arbiter of the Parliamentary Committee’s recommendations!
International students to the Bush
Last month the Prime Minister raised the prospect of sending more international students to regional campuses. This inference was that it might be done via changes to temporary visa allocations.
The rationale is that more international students in regional Australia would (i) help build regional economies and social cohesion, (ii) give them a better, more rounded learning experience, and (iii) take pressure off our cities.
This is all wonderful stuff. But we’ve got to improve the attractiveness of the regional universities. It’s unfair to dragoon students to universities with little support infrastructure or no part-time jobs to help them earn their way.
I have some meetings scheduled here in Canberra on this subject, and I will report back next month. Please drop me a line if you have an interest.
OECD Conference, Venice
On 6-7 December the Organisation for Economic Co-operation and Development (OECD) is hosting a conference on the cultural and creative industries.
It will develop recommendations for economic and social policies that leverage culture and cultural heritage to enhance economic growth, job creation and social inclusion. It will highlight ‘what works’ in policy governance arrangements and funding models.
This conference has a glittering host of speakers, including the OECD Secretary-General.
But the value of these conferences lies in the corridor discussions and the contacts made. Australian and NZ stakeholders could excite interest by bringing New World perspectives on the creative industries, and the OECD should welcome this. Attendance is free. Contact me if you’d like a free steer.
Rod Brown is a Canberra-based consultant and lobbyist specialising in industry/regional development, investment attraction and clusters, and accessing federal grants. He also runs the Cockatoo Network.
Phone: (02) 6231 7261 or 0412 922 559
Email: apdcockatoo@iprimus.com.au
