After a week dominated by a major party retreat – rhetorical or real – from free market ideology, I’ve given today’s Inside Out to regular correspondent Tim Dunlop in Canberra. He’s subjected its certainties to a searching layman’s analysis, via the dairy deregulation debate. Heavy going, sure, but Wow! I asked Tim why he was interested in the topic, and he replied:
“I wasn’t really interested at all, but it is a rather symbolic topic in debates about the role of government, the notion of free markets, and the place of economy versus society in our lives. It started because I heard Mark Latham on Lateline, I read Paul Kelly and Imre Salusinzky, and they all sound so authoritative about what an unequivocal “good” dairy deregulation is (and neo-liberalism in general) that I decided to check it out for myself. Thanks to the internet an immense amount of material is available and I thought the claims of the various advocates just didn’t add up. So I decided to put what I’d found down on paper and see what I came up with.
“A couple of things make it attractive as an example. One is that it is about something that nearly everyone knows something about, that is, we all buy milk. The other is that it shows how ideology can simply overcome common-sense in that, even if deregulation worked exactly as they say it should, the net benefit to consumers is so bloody small that you have to wonder what the point is. I show in the article that even if it reduced the price of milk to ZERO, on average we would be only $3.20 a week better off. And this against the loss of 4000 dairy farms and $2 billion out of rural communities. Nutty in my book.
“So I knew nothing about it going in and had no previous interest in cows, farms or even milk before in my life. It just seemed like a good example of how the rhetoric doesn’t match the reality, which is why I tied it to a wider discussion of democracy and citizenship, which is something I do have an interest in. My thesis topic is on the relationship between intellectuals and citizens in Australia.”
MILK DEREGULATION IS GOOD FOR YOU: PULL THE UDDER ONE
By Tim Dunlop
This is an article about milk deregulation. But it is also about democracy, what we mean by it and how we can participate in it.
I write this as a citizen, not an economist. One of the big bluffs that experts use to minimise participation by we mere mortals of the general public is to maintain that only the properly trained are in a position to comment on such matters. I reject this, and suggest that not only is it possible for average citizens to get a grip on some of these specialist matters, but that we all should have a go at it more often. Sure, the experts will pick us up on the fine detail, but we shouldn’t mind that – anyone would be foolish to reject the correction of out and out errors. But in a democracy, no-one is an expert on what we should expect our democracy to look like. We all get a say in that. Or we should.
The American journalist Walter Lippmann thought that this lack of specialist knowledge was such a barrier for ordinary citizens he concluded that they should just leave the running of the country to experts, people specially trained to deal with the complexities of nation-management. He has plenty of tacit supporters throughout the world, including in Australia. On the surface of it, such a position has a certain common-sense appeal. I mean, running a country is a complex matter; it does involve the cultivation of specialist skills, of expertise, and it does need a professional class of technocrats to run things. But acknowledging this truism is not the same thing as saying we should just leave it to them to get on with it.
This, therefore raises the first issue that animates how we might understand our democracy: what is the relationship between ordinary citizens and the elites, the experts, the intellectuals who run the show? The second issue is this: how are we to understand the relationship between the economy and society?
My opinion is that in both cases we have got the balance wrong. Experts dominates citizens, and the economy dominates society. And on my reading, the topic of dairy deregulation provides some insights into the battle that exists between these competing forces. By looking closely at a real-life example we might be able to make some useful general comments about the nature of our democracy. So this discussion is in two parts: a detailed look at dairy deregulation followed by a more general discussion of what it all teaches us about our democracy.
Dairy deregulation is part of a general policy of deregulation that has been pursued by governments of both major persuasions for at least twenty years. On the 28 September 1999, the government announced that all support for the dairy industry would cease and they passed legislation to this end that took effect on the 30 June 2000.
Until then, the industry was supported by “two major sets of regulatory arrangements, the Domestic Market Support Scheme (DMS) for manufacturing milk, administered by the Commonwealth, and State regulatory arrangements for market milk”. Essentially, the industry made a distinction between market milk (drinking milk) and manufacturing milk (non-drinking) and each was supported by the state and federal governments respectively.
The detail of how the various subsidies worked is fairly complex, and we only really need to note two things: first, all subsidy was basically paid for by consumers and therefore represented a transfer of money from consumers to producers. Second, none of this subsidy exists any more. This was the whole idea – end subsidies and therefore lower the price to consumers. As you will see, things are never as simple as they seem.
There are two things to keep in mind. One is the argument of whether consumers should be charged a premium in order to fund a subsidy that keeps more farms in existence than would otherwise be the case if no subsidy existed. And don’t let anyone tell you this is merely an economic question. Certainly it can subsumed under the rhetoric of free markets, the need for competition and “level playing fields”, and the “rights” of consumers. But it is just as much a philosophical question and you don’t need a degree in anything in order to think about it and come up with a valid opinion. It is a question of what sort of society you want to live in.
The second question to ponder is whether the evidence justifies the economic claims made on behalf of deregulation.
Deregulation goes hand in hand with what is officially called Competition Policy, a coordinated effort by Federal and State governments of micro-economic reform. Full deregulation is consistent with the aims and intention of Competition Policy. It is also fair to say, and in fact the bill digest does say that, “National Competition Policy reviews of state regulatory arrangements undertaken as a result of the Competition Principles Agreement between the Commonwealth and the States have added impetus to the deregulation push”. It is important to understand this, as such an environment, as I argue below, adds to the feeling of so-called inevitability that surrounds dairy deregulation.
Before giving an outline of how it specifically applies to the milk industry, here’s bit of background on competition policy in general and one of the agencies closely associated with its implementation, the Australian Competition and Consumer Commission (ACCC). One of the ACCC’s Commissioners described competition policy in these terms: “The aim of micro-economic reform (and of competition policy as part of it) is to improve the efficiency with which resources are used, thus contributing to improved living standards. Thus, it is about: increasing the output obtained from a given input (technical or production efficiency); improving the allocation of resources between different uses, such that resources go to those uses where consumers value them most (allocative efficiency); and improving the response to changing demand and supply conditions (referred to as dynamic efficiency).”
You can see that farmers might flinch a little from this description. Although there is reference to “improved living standards”, three things are apparent. First, it isn’t referring to the farmer’s standard of living, rather the consumers.
Second, “living standards” is rather narrowly presumed to be equivalent to the cost of goods, and therefore people are being considered merely as consumers, not as citizens with interests outside the purely economic. Thus, a reduction in the retail price of milk is presumed to be a greater good than subsidising the price so a number of farms can continue to exist (and ABARE estimates the number of dairy farms to go will be in the order of 3-5000).
Third, it is subordinated to the other three listed goals, which are given the typically jargonistic (and therefore deceptive) titles of technical efficiency, allocative efficiency and, the almost Orwellian dynamic efficiency. That is, although some lip-service is paid to “living standards”, what is being offered here is first and foremost an economic process, not a social one, a crucial difference. A reduction in the price of milk is more important than 3-5000 farms being “artificially” maintained by government subsidy. True or False?
In fact, the same Commissioner, in the same speech, acknowledges the difference and places the Commission firmly on the side of the economy, not society. She speaks of what is called the “public benefit” in the workings of the ACCC. Public benefit is one of those phrases that sounds not only self-explanatory but unequivocally positive. It is neither. It is a piece of newspeak that seeks to imply the notion of a common good while at the same time undermining the political settlement involved in attaining any notion of a public good. It is verbal Prosac.
The Commissioner notes not only that “[p]ublic benefit is not defined by the Act” but also, lest there be any doubt about it, that “The public benefit of the conduct is assessed within the context of the market.” Got that?
The Commissioner notes nine items she thinks constitute “public benefit”: fostering business efficiency; industry rationalisation; expansion or employment; promotion of industry cost savings; promotion of competition in industry; promotion of equitable dealings in the market; development of import replacements; growth in export markets; arrangements which facilitate the smooth transition to deregulation.
I certainly don’t want to disparage these as goals per se. But what does such a list tell us? It makes it absolutely clear that we (the “public” in “public benefit”) are being thought of merely as consumers and the “benefits” we are to (rather indirectly) receive, and the “benefits” that will be protected by the ACCC, are purely economic. The logic of this is that we the public will benefit because product x (milk, in this case) will be cheaper.
But what this Commissioner is making abundantly clear is not the “public” in any meaningful sense, but in fact industry, business, and that favourite abstraction, “the market”. To me it’s a pretty odd definition of “public benefit”.
In fact, the Commissioner is drawing on the government’s own understanding of “public benefit”. The National Competition Council (NCC) uses similar criteria, though they make some interesting additional comments. They suggest, for instance, that “National Competition Policy only requires that Governments identify and change their laws when the restrictions on competition are not justified by public interest.It explicitly recognises that there are circumstances where restrictions are justified.” They add that, therefore, “each law must be assessed against a number of criteria including specific public interest considerations; whether there are other ways of achieving the objectives of the laws without hindering businesses and, whether the benefits of the laws outweigh the costs.
These are interesting points because they indicate that deregulation is not necessary, though again it is all couched in market-subordinate language: note that line “without hindering business”. All this illustrates the most remarkable circular thinking or Catch-22 or doublethink. Consider: competition policy itself does not require deregulation if “restrictions (regulations) are justified.” What test do we apply to see if they’re justified? A public interest test. What’s the public interest? Well, as the ACCC Commissioner said, we’re not sure, but we do know that it is “assessed within the context of the market.” The NCC also says that it shouldn’t “hinder business”. So if the market reckons deregulation is necessary, then it fulfils its public benefit test!
Even if we accept this rather distorted definition, is there actually some “public benefit” in milk deregulation, and how might we quantify that benefit? Clearly, we do this by looking at the price of milk before and after deregulation. But this isn’t as straight forward as it sounds. I want to come back to this point because really this is the whole reason that its advocates promote Competition Policy in general and milk deregulation in particular.
The whole point of “technical”, “allocative” and “dynamic” efficiency; the whole logic of “business efficiency”, “industry rationalisation”, “expansion or employment”, “promotion of industry cost savings”, “promotion of competition in industry”, “promotion of equitable dealings in the market”, “development of import replacements”, “growth in export markets”, and “arrangements which facilitate the smooth transition to deregulation” is to give “us” the “public benefit” of cheaper milk. That’s their justification and we should assess it on its own terms. But before we do, and lest anyone is tempted to think that this is just my own personal vexatious reading, let’s take a look at a another source which has misgivings about this straightjacket definition of “public benefit”.
The report of the Rural and Regional Affairs and Transport References Committee on the Australian dairy industry (the official government inquiry into deregulation) expressed similar concerns about the role of competition policy and the definition of “public interest”. When the report was tabled in parliament, the chairman said: “The Committee has a number of specific concerns about the proposal to deregulate the industry, including the application of the public interest test in the State based legislation reviews under the terms of National Competition Policy…The Committee’s concerns in relation to the application of National Competition Policy principles, especially the interpretation of the net community benefit/public interest test and its application in the varying legislation reviews include: there has not been a thorough investigation of the national consequences of deregulation with State reviews being undertaken piecemeal; assessment of the public interest in the reviews has been less than comprehensive and appears to favour narrow sectional interests.”
I offer all this as prelude because it places in context the thinking of those in power who decide that stuff like milk deregulation is a good idea. I contend that they are not thinking about the real lives of real people, they are thinking and acting on behalf of a bloodless abstraction (largely of their own invention) called “the economy” or “the market”. It’s bit like the logic of Michael Corleone in The Godfather II, who in the name of protecting “the family” has various actual members of it, including his brother, killed.
The main point to make in this regard is the presumption that deregulation equates to public benefit. Each of the criteria that the Commissioner gives us above has this as its heart and soul. There is no room in their thinking that allows for an alternative approach. Of course, this is part of the power of the doctrinal system – assert and presume at every juncture that There Is No Alternative (TINA). When obvious failures of pure free markets are pointed out, go to Plan B which is Not Implemented Completely Enough (NICE). Or plan C, Give It Time (GIT). Plan D is also sometimes employed by apologists for the system – the insulting attack on anyone who dares question the genius of neo-liberalism.
A classic Plan D in regard to milk deregulation was thus executed by SMH columnist Imre Salusinszky: “The fall in prices that attended deregulation confirms that the udder-wringers have been too focused on milking the public, rather than their cows”. Apart from the gratuitous dismissal of the 3-5 thousand farms that will close thanks to deregulation as “udder-wringers”, the implication and justification of the process implied in his comment is, as always, the promise of cheaper product. Everything is permissible, in fact desirable and inevitable, as long as “the public” gets cheaper milk. As Paul Kelly, another deregulation tout puts it: “The benefits of deregulation are larger, more productive farms delivering a better Australian industry and cheaper milk for consumers.”
In fact, three arguments are usually put forward in support of dairy deregulation: “larger more productive farms”, as Kelly puts it; the “fact” that “the farmers wanted it”; and the promise of cheaper milk. Let’s deal with each in turn.
More Productive farms.
It is certainly true that dairy farms have been getting larger, that is, running more cows. And ostensibly this means they are more productive: that is, if there are more cows on the same amount of land, then it almost inevitably mean more milk is produced. Two things to note: this trend to larger farms was happening anyway and can hardly be claimed as a benefit arising simply from deregulation, though proponents would probably note it as one of the developments that made deregulation “inevitable”. But again, notice the false logic: farms are getting more efficient; deregulation makes things more efficient; therefore deregulation is inevitable.
The other is that what some define as more efficient farms others see as an environmental problem. Dr Jim Scott of the University of New England has led the case warning of the environmental impact of dairy deregulation. He says: “It is clear that, as milk prices to the farmers decline sharply with deregulation, milk production changes will be forced in the direction of large feedlots and the long-term negative consequences of this have not been taken into account.
“Compared to the current rain-fed pasture system which supports most dairy production of drinking milk, feedlots have huge numbers of cows, resulting in concentrations of manure and effluent that need to be disposed of rather than have cows re-cycle it back to pastures naturally as they graze. Harvesting and irrigating crops for large feedlots will use up energy as will transporting milk around the country from the main dairy state, Victoria, once most coastal dairy areas in NSW and Queensland have been shut down.”
The point he makes is that, for environmental reasons, there is a good case for a regulated industry. “If consumers want to continue to get a regular supply of high quality drinking milk, it makes very good sense to regulate supply and price so that seasonal fluctuations in production can be ironed out using such production controls and incentives. All consumers have a right to expect their food to be produced in an environmentally responsible and sustainable fashion.”
The farmers want it
Labor MP Mark Latham, about as gung-ho for competition policy as you get on either side of the parliament, said in an ABC interview in February: “I’m on the side of the dairy farmers. Ninety per cent of Victorian dairy farmers voted for deregulation. This was Australia’s first ever democratic deregulation. So how can anyone like Hanson or other people campaigning on these issues say that they want to reregulate the industry when it’s the industry itself, the great bulk of Australia’s dairy farmers are in Victoria and they decided that they wanted to go down in path?”
Did they? It’s actually almost impossible to judge. It certainly isn’t as clear cut as Mark Latham makes it seem. The first point to make about the vote Mark Latham mentions is that, as he said, it was amongst Victorian farmers only. The significance of this is that Victoria dominates the dairy industry in Australia, accounting for two-thirds of all production. As the chair of the Rural and Regional Affairs and Transport References Committee on the Australian dairy industry, Senator John Woodley, put it: “Deregulation is principally supported by the large Victorian co-operatives, Murray Goulburn and Bonlac, and the United Dairyfarmers of Victoria. However, because Victoria dominates dairy production in Australia, producing two thirds of the total milk produced in Australia, Victoria’s press for deregulation is of considerable weight.”
It is undisputed that Victorian farmers have led the push for deregulation. But even this is a little misleading, as the real push has come from the three big corporations who dominate the Victorian industry, Murray Golburn, Bonlac and United Dairyfarmers. So I guess we shouldn’t be surprised that those who already dominate the industry want barriers that limit their ability to expand got rid of.
Nonetheless, a large majority (89%) of Victorian farmers did vote to deregulate. But as a number of people have pointed out, this seemed to be out of resignation rather than conviction. As the Dairy Industry Council (ADIC) has said. “We cannot stop the commercial push for deregulation. The best possible action is for all dairy farmers to send a very clear message to their state politicians. We need the restructure package to help manage the inevitable deregulation package.”
Let’s face it – the whole history of economic policy in this country for some time now has been of the sort of neo-liberal “reform” that favours less regulation and increased competition. The catch-cry has always been TINA – There Is No Alternative. Farmers therefore had good reason to suspect that deregulation was a preferred option. Add to this the fact that deregulation was being led by those who dominate the market, and it adds another layer of inevitability. I mean it’s not as if people were really being given an option in the form of a vote. There was no evidence that had they voted no that any effort would have been made to honour that vote. Competition policy was in place. Deregulation was the official way to go.
The other point is that the regulated market rested on a questionable reading of the Constitution which outlaws trade restrictions between states. Under regulation there was a sort of “gentleman’s agreement” to overlook this constitutional impediment. And although at least one farmer’s group produced a legal opinion suggesting that such regulation was in fact legal, no-one really wanted to go to the trouble and expense of testing it in court. Especially when most people would just shout “inevitable! inevitable!” whenever anyone mentioned deregulation. Thus, when Victoria decided to “go it alone” as market leader and ignore the gentleman’s agreement, another support for regulation collapsed. Certainly, this did add to the “inevitability”.
But there was another aspect to the vote. As part of the deregulation, a compensation package was being offered to farmers, a cash payment to help them through the change-over and out of the dairy business. However, the package was only available if farmers in all states accepted deregulation. It kind of adds a whole new dimension to the idea of Mark Latham’s “democratic deregulation”, don’t you think? To again quote committee chair, Senator Woodley: “They voted with a gun to their heads because they were told they’d get no compensation unless they voted yes.” So I think it is a reasonable reading of the “vote” for deregulation that it was more a case of farmers throwing their hands up in surrender than pumping the air in support.
Here we come to the deregulators’ trump card. This is the bottom line. Mark Latham: “In my electorate of Werriwa, young families drinking a lot of milk, they are many many dollars a week better off because of the lower prices for consumers.”
I’d like to know how he knows, because despite the fact that this is such a central plank of the argument in favour of deregulation, it is surprisingly hard to find evidence to support it. Besides, for any one family to be “many dollars a week better off”, they would have to be drinking an awful lot of milk, a point to which I’ll return.
But even an advocate like Paul Kelly acknowledges that the benefits “are coming…too slowly” and that “[t]he truth is that the consumers aren’t getting the benefits they should at retail outlets”. He quotes the ABARE figures which indicate that the average spot price of a 1-litre milk carton is ‘slightly lower’. It has evidence of 2-litre packages in supermarkets selling for about $2 each and 3-litre packages at about $2.90 which is ‘a significant reduction'” – not exactly a ringing endorsement.
Why is it so difficult to determine whether the price has dropped or not?
A number of factors cloud the issue. The first is that the $1.8 billion compensation package is being funded by a levy of 11cents per litre on the retail price and this has to stay in place for eight years. (In fact, about $1.25 billion of this goes to farmers, the rest arises because the Tax Office refused to make the package tax free.) Thus, the retail price reflects this enforced increase for the next eight years, whether the price goes up or down.
The second is simply the availability of reliable data. The Australian Dairy Corporation makes the following point: “The removal of state milk regulations from 1 July 2000 has had implications for the availability of dairy industry information. While the ADC is working with dairy companies and other organisations to continue data collections – comprehensive national data is not yet available for 2000/01.” Such a conclusion is supported by ABARE. This seems to be a polite way of saying that information has, under the guise of “free markets” and “public benefit”, moved from being a general, publicly accessible resource to being private property and therefore not for our eyes.
Another factor is the role of the large producers and the large retailers. For one thing is certain: the wholesale price of milk has dropped. In fact, collapsed is probably a better word. In the period 2000/1, ABARE estimates that the “farm gate” price of milk will drop by a low of 3.5% in Victoria to a high of 30% in Western Australia. The average reduction throughout the states will be, on these estimates, 17%. This means that the big retailers and the big producers (that is, six corporations) have received something of a windfall. And it is not clear that anyone can force them to pass on these savings to consumers, which, remember, is the whole idea of the process. Many have suggested that the real winners out of deregulation are therefore these six corporations, particularly the two biggest retailers, Coles and Woolworths. And certainly, by a simple process of elimination we can suggest that the 17% reduction in the farm gate price must have gone somewhere: the farmers sure haven’t got it. No sign of it on the supermarket shelves. Where could it be?
Another aspect is that these corporations are now in the enviable position of being able to negotiate from a position of absolute power. With only really three big retailers and three big producers, these giants get to deal on a one-to-one basis with the farmers. A family with 50 cows versus Woolworths. Even advocates of deregulation recognise this might be a tad unfair. The Australian Dairy Industry Council chairman, Patrick Rowley, although a advocate of deregulation, has said: “The structure of the Australian industry with three big supermarkets tendering for market milk and three major milk processors struggling to get home brand share is a recipe for a hell of a scramble for price to the detriment of the farm sector, and that is exactly what has happened.”
He wants to see some sort of collective bargaining put in place and is lobbying the ACCC to set it up. They apparently are sympathetic. And they now have support from a most unlikely source, the Prime Minister and the Deputy Prime Minister. Why is this an unlikely source? First, because it was their government who introduced deregulation and chose to ignore warnings that this sort of thing would happen. And second, because history would suggest that they have an ideological aversion to collective bargaining of any sort. I mean, I don’t see them encouraging it in wage negotiations. But I’ll come back to this change of heart.
A further point needs to be made about the role of the supermarkets and prices. Given that their margin has increased and that there is no longer a fixed retail price for milk, they have a deal of flexibility in setting the price in their outlets. Thus, they may choose one week to run it at a highly reduced rate as a loss-leader. But the next week they can put it up to whatever level they think the market will bear. This makes the whole concept of cheaper milk prices highly problematic, for what does it mean to say that prices have dropped when the price can fluctuate to such an extent? An argument based on the idea that the price will be lower presumes a standard price against which decreases can be gauged. In the absence of such a standard, the claim that prices are dropping becomes, logically, rather suspect.
We might also consider the fact that, as the Australian Dairy Corporation puts it: “The gradual deregulation of the market milk sector has seen a corresponding increase in competition between processors. This has resulted in the introduction of an expanding range of branded milks, which may have varying fat contents, or are fortified with extra vitamins and minerals. Other milks have been developed to address particular consumer needs, such as lactose-free, or extra frothing milk for cappuccinos”. Most of these “branded milks” are premium products. That is, they attract a premium price. In other words, competition may have simply led to the search for premium niche markets and therefore forced the price up.
There is one final point that is rarely spelt out when people discuss the advantages of deregulation in the form of cheaper milk. ABARE estimates that the cost of the subsidy to milk farmers was around $350 million a year. Thus by ending deregulation, these tax dollars will be available for other things. This is true. But don’t forget: the government has now put in place a $1.8 billion safety net for farmers and although I am certainly not knocking this (under the circumstances) we shouldn’t forget that this too is coming out of consumers’ pockets. If we divide $350 million into $1.8 billion we find that the structural adjustment package is equivalent to just over five years worth of industry subsidy; that is, it is as if the subsidy was there for another five years anyway. With one big difference: under the structural adjustment package there are 4,000 less farms.
So at this stage I would defy anyone to give a definitive answer on whether the price has gone down. I certainly can’t tell just by going to my local supermarket or service station. ABARE can’t tell, though, as I’ve indicated, they try and put the best gloss on it. So what then can we say about the price of milk? My guess is there may be some bargains for a while, the novelty will wear off, the price will stabilise, and gradually rise. That’s what happened with eggs, as I explain below.
Doesn’t this strike people as strange? I mean, if this is the bottom-line justification for a policy that the government’s own figures suggest will result in the closure of between 3-5,000 dairy farms; of farmers being at least $13,000 a year worse off even after the compensation payment (ABARE’s figures); and that will do collateral social and economic damage to families and rural communities (John Cartwright of the Australian Milk Producers Association, for instance, estimated that $2 billion would be taken out of rural communities) shouldn’t this so-called advantage (cheaper retail milk) be blindingly obvious and easy to see? Shouldn’t it be indisputable?
I know, I know. There is no alternative. Not implemented completely enough. Give it time.
It might help to look at another deregulated industry where the promise of lower prices was also claimed as a central benefit: eggs. Here the evidence is in and it’s not too encouraging for those who equate deregulation with lower prices.
A News Weekly article of 20 May 2000, headed “How deregulation cracked the egg industry”, states: “Seven years after it was deregulated, the Victorian egg market is delivering low returns to farmers and high prices to consumers. It represents a redistribution of wealth upwards from producers and customers to retailers and shareholders. Deregulation of the Victorian egg industry in 1993 has led to increased supermarket egg prices to consumers and reduced returns to farmers. According to one large volume Victorian egg producer, Philip Szeppe, in 1993 farmers were being paid $1.32 for a dozen 55 gram eggs which then retailed in the supermarkets for $1.91. Australian Egg Industry Association figures show that, in February this year, farmers were being paid 78.5 a dozen for eggs that retailed for $3.31 a dozen on supermarket shelves in Victoria.”
The article continues: “One egg producer near Bendigo, Robert Harrison, recently featured in the media after the payment he received for the delivery of 30 dozen eggs was one 45 stamp from his egg buyer. He is a low volume producer now being forced out of the industry. Mr Harrison told the Weekly Times, “I don’t have much faith in deregulation, and I think the same sort of thing might happen in the dairy industry.”
I reckon he might be right.
So if you asked me to sum up dairy deregulation I would say something like this: the compensation was inadequate, though it is virtually impossible to imagine a really “adequate” package given the dislocation that everyone knew would occur; there are environmental concerns that were almost completely ignored; the way it was implemented was suspect, especially tying the vote for deregulation to the compensation package; the whole process is based on a flawed and possibly bogus understanding of the term “public interest”; and the one great benefit – cheaper milk – cannot be found with any confidence. This is why I would suggest that if someone says to you that dairy deregulation is a good thing, you would be within your rights to say, “pull the udder one”.
There is a sequel to all this that has hit our screens only in the last couple of days. It seems the scriptwriters want to go off in an unexpected direction. Led by the Nationals, the Coalition has announced they will reconsider some aspects of competition policy, particularly in regard to the dairy industry, particularly in regard to how “public benefit” is defined (um, remember? it’s not defined). Let’s have a look at what they were saying then and what they are saying now.
It is interesting to note that, even amongst the advocates, there was always an air of resignation and a concomitant feeling that there was nothing the government could really do. The Minister for Agriculture, Warren Truss, was even willing to eschew responsibility for deregulation, saying in a press release: “The simple fact is, the Commonwealth Government did not deregulate the dairy industry. Deregulation occurred because of commercial pressures from the major dairying States and State Government responses.” This did not stop them from repeating the mantra of “lower prices” at every opportunity and against every objection.
The closer you look at what the advocates say, the more you wonder at their logic. Paul Kelly is probably as well-informed, reasonable and concerned a commentator on the topic as you are likely to find and yet his advocacy is difficult to fathom. His recent opinion piece on dairy deregulation repays a careful reading because it shows you the odd, almost cognitively dissonant logic you are up against if you want to oppose such reforms.
The first thing you notice is that you will be called a “Hansonite” or at the very least the presumption will be that all opposition comes from Pauline Hanson and her party. The name “Hanson” is used and evoked throughout Kelly’s article. He writes: “The dairy industry is a micro-study in the false economics but receptive politics of Hansonism.”
No it’s not, Paul. It’s a complex issue, which, as we’ve seen doesn’t lend itself to easy answers, let alone sweeping generalisations. Opposition to it is hardly just coming from Hanson. The Democrats have opposed deregulation at the Federal and State levels. Environmentalists opposed and oppose it. Many farmers opposed it, even as they recognised they were being swept along on the rhetoric of inevitability. The chair of the Senate committee that investigated deregulation was a Democrat. His pleas against the mentality of “inevitability” are articulate reminders of what is at stake here, namely, the ability of a country to be in charge of its own destiny.
But even you, Paul, have serious misgivings about how it has proceeded. But let’s not get off on the wrong foot: to oppose dairy deregulation doesn’t make you Pauline Hanson and it doesn’t make you a closet One Nation supporter.
Kelly makes a number of observations in his usual enumerating way: deregulation shows three things; there are three morals. The trouble is, at least for an advocate, none of them actually show any advantage in deregulation. They assert benefits, they theorise them, but they can’t actually point to them in the real world. Like everyone else Kelly tells us that deregulation was inevitable; he implies that it is desirable. But he can only offer in support the section I quoted earlier: “The benefits of deregulation are larger, more productive farms delivering a better Australian industry and cheaper milk for consumers.” But as we’ve seen, none of these stand up to scrutiny. What’s more, he knows it and admits it.
He writes: “Hanson’s economics are the latest instalment of the struggle between producer and consumer interests so dominant in Australia’s history. The difference now is that consumers, at last, are starting to win.”
As I’ve already suggested, although this is offered as a choice in economic terms, it is really a philosophical or political question. But Kelly, like others, reduces it to a quantum calculation and it is clear what answer he gets to his sum. That is, he is weighs the benefit of the absolute uncertainty of the cheaper retail price of milk against the virtually undisputed loss of around 4,000 dairy farms, $2 billion in associated wealth that will be lost to rural communities, and the non-economic disruption associated with these losses and decides it equals inevitable, desirable deregulation.
As a consumer, as a citizen you have to ask, surely, is it worth it? Is Kelly’s the right answer?
Kelly thinks it is despite noting that “the public’s gains from reform are hard to extract and spread thinly across the community, the losers are identifiable and angry [t]he industry shake-out is intense and traumatic” and that “[t]he truth is that the consumers aren’t getting the benefits they should at retail outlets”.
Finally, he accuses opponents of holding out false hope to people in their opposition to deregulation: “Hanson’s trouble is not just her phoney solutions, but the false hopes she engenders in people”. There might some truth in this if we define the hope that is being held out as merely re-regulation. Although Kelly is wrong in saying that Hanson is the only one proposing this (the Democrats had it as an option at one stage, as did at least one of the farming organisations, and environmentalists represented by Dr Scott of UNE still advocate it), he is probably right in implying that the moment has passed.
The industry won’t re-regulate. It doesn’t need to – those whom regulation supported, the smaller farmers, are going or already gone. But it takes a bit of cheek to accuse re-regulators of holding out false hope. What could be classified as a falser hope than the promise of cheaper milk for consumers under deregulation? Even if we got it – which doesn’t seem to be happening – would it be the boon that Kelly and others suppose?
Consider: Australian Dairy Corporation statistics show that the average per capita consumption of drinking milk in Australia has been steady for at least the last fifteen years at about 100 litres per annum. This means, on average, we each buy about two litres of milk a week. So even if the price dropped to zero, we would save about $3.20 a week each. So this is our average consumers absolute best case scenario.
No wonder that even the government is having second thoughts. Not that they are going to re-regulate, but they are re-visiting the compensation package. And their concern over what has happened in the dairy industry – no doubt heightened by recent state and by-election failures and the reality of a looming Federal poll – has caused them to revisit competition policy in general.
Deputy Prime Minister, John Anderson, has said, “I am very interested in [the idea of collective bargaining] … I don’t think the rules have allowed for a proper assessment of a community interest, let alone dairy farmers’ interests.” The Prime Minister said in Parliament: “If I find areas where the policy is not working to the public benefit or in the national interest, I will not be the least bit reluctant to pursue with the State governments changes, because that is the common sense thing to do.”
The question that this raises above all others is why has it taken until now for them to consider these matters? Nothing is known now that wasn’t known before the legislation was enacted. All the things they now consider problematic were the very things that they were warned about. In particular, the report of the Rural and Regional Affairs and Transport References Committee foreshadowed all these things. Committee chair Senator Woodley almost begged the government to give proper consideration to the concerns of the committee. In particular he urged them to consider the Bega Valley Social Impact Study, funded by the local community. It developed a detailed snapshot which demonstrated in a highly specific way the impact a fall in the farmgate price of milk of different degrees would have on the local community. “The Committee considers that this is a fundamental piece of work, demonstrating very clearly the potential impacts of deregulation on a community such as the Bega Valley,” he said.
It was all known. It went ahead anyway. It was inevitable. TINA. NICE. GIT.