Government Intervention in Dairy Industry Sparks Price Disparities
Source: The DairyNews
The Australian government's protective measures implemented four years ago to support dairy farmers have inadvertently led to challenges for local food processors. These protections set the farm gate milk price annually in June, keeping prices paid to farmers by local processors higher compared to their international counterparts. This has widened the gap between the earnings of Australian and New Zealand farmers, with the risk of managing climate variability shifting to farmers.
Major Australian dairy manufacturers, including Canada's Saputo, are taking action to address the impact of higher prices. Saputo is reviewing its local operations, considering potential factory closures due to increased costs. Noumi, a plant-based drinks and long-life milk manufacturer, suggests industry consolidation to address the price dislocation.
Despite a 2021 review affirming the code's operation "as intended," concerns persist. The delayed second review is now being informed by industry evidence, with potential changes to the farmgate price-setting period under consideration. The current mid-year setting makes it challenging for processors to predict milk collection and payments accurately.
Rising competition from international dairy importers, especially from New Zealand, prompts concerns. Australian milk prices are significantly higher than in New Zealand, hindering local processors' ability to adjust prices during the season. The unprecedented price disconnect between the two countries, with Australian prices about one-third higher, raises the possibility of sourcing supplies from overseas for some dairy companies.
Labor's plan to scrutinize supermarket competition, led by former trade minister Craig Emerson, adds another layer to the industry dynamics. The review will assess the relationship between major supermarkets and their suppliers, including dairy processors, and considers the potential administration of a mandatory code of conduct by the Australian Competition and Consumer Commission.
While the dairy code aimed to promote fair trading after the Murray Goulburn incident in 2016, the unintended consequences include record-level price discrepancies between Australia and New Zealand. The price difference raises concerns about the long-term impact of dairy imports on the Australian industry. Farmers, while benefiting from price certainty under the dairy code, acknowledge the need to balance profitability for processors amid competitive challenges.
Despite a 2021 review affirming the code's operation "as intended," concerns persist. The delayed second review is now being informed by industry evidence, with potential changes to the farmgate price-setting period under consideration. The current mid-year setting makes it challenging for processors to predict milk collection and payments accurately.
Rising competition from international dairy importers, especially from New Zealand, prompts concerns. Australian milk prices are significantly higher than in New Zealand, hindering local processors' ability to adjust prices during the season. The unprecedented price disconnect between the two countries, with Australian prices about one-third higher, raises the possibility of sourcing supplies from overseas for some dairy companies.
Labor's plan to scrutinize supermarket competition, led by former trade minister Craig Emerson, adds another layer to the industry dynamics. The review will assess the relationship between major supermarkets and their suppliers, including dairy processors, and considers the potential administration of a mandatory code of conduct by the Australian Competition and Consumer Commission.
While the dairy code aimed to promote fair trading after the Murray Goulburn incident in 2016, the unintended consequences include record-level price discrepancies between Australia and New Zealand. The price difference raises concerns about the long-term impact of dairy imports on the Australian industry. Farmers, while benefiting from price certainty under the dairy code, acknowledge the need to balance profitability for processors amid competitive challenges.
