A glimpse of the world: abolition of supply management in Australia
Excerpt from European Milk Board’s newsletter (EMB)
The elimination of European milk quotas in April 2015 is still shaking European capitals, there is a serious agricultural crisis underway, especially in the dairy sector. Milk prices have fallen and can no longer cover production costs. For the European Commission, the elimination of milk quotas should enable farmers to produce more to meet growing demand, particularly on the world market.
But the example of Australia’s elimination of milk quotas in 2000, detailed by Professor Bruce Muirhead of the University of Waterloo in Ontario, Canada, in an interview given to the European Milk Board (extract here1), shows just the opposite. The idea that the elimination of milk quotas would lead to an increase in production is indeed contradicted by the figures presented by the Professor: “When the process began, Australia produced about 11 million tonnes of milk; in 2015, this figure fell to around 9.5 million tonnes.” Furthermore, the net average income of a dairy farmer could amount to zero in 2017, while further deregulation of the dairy sector has not only led to more volatility, but also the disappearance of many farms.
The Australian example is similar to that of Switzerland whose milk quotas disappeared in 2009. It is clear that their elimination posed and is still posing the question of the establishment of regulatory mechanisms, while the sector is currently undergoing a major crisis.
As we can see, the elimination of quotas in Europe will not be easy without adequate safety nets. The tension surrounding price formation between producers and processors as well as the decline in dairy prices and exports are all difficulties faced by the Australian and Swiss dairy sectors. The European dairy sector will certainly not be spared.
momagri Editorial Board
In Australia, too, they have had experience of a system shift. In 2000, they ended supply management the milk market. Professor Bruce Muirhead from the University of Waterloo in Ontario, Canada, studied the subject in detail and answered two questions about it.
EMB: In Australia the regulation of supply and pricing was abandoned in the year 2000: What were the consequences for the farmers? What influence did it have on the national milk volume?
The consequences of this policy shift were memorable for Australian dairy farmers. When the process began, Australia was producing about 11 million tonnes of dairy; by 2015, that had dropped to approximately 9.5 million tonnes. The collapse in global dairy prices in 2014 has made that situation worse. Australia cannot now count on export markets to help make ends meet.
With deregulation in Australia, farms also got much larger, with so-called feedlot farming becoming more normal. That means, of course, that the number of farmers shrank. While this is happening in all industrialized countries, in Australia, its effect has been more concentrated. For example, in the state of New South Wales, as the number of farmers plunged from 1,725 to 731, the average number of cows per farm increased from 155 to 268. As well, as a NSW government report, Overview of the New South Wales Dairy Industry, has pointed out, “deregulation brought lower and more volatile milk prices to NSW dairy farmers; coupled with a prolonged drought, this forced farmers to develop adaptable and resilient farming systems.” Clearly, making a living from dairy farming in Australia in 2015 is extremely difficult, made worse by those factors over which they have no control – supply and demand, world prices and exchange rates.
It is now almost impossible to sell dairy farms for that purpose. As one Australian realtor has noted, there is no market for dairy farms in the southeast of the country, one of the natural dairy hubs. Bruce Auld, a rural sales specialist, said in April 2013 that “The last dairy I sold was in Tantanoola and took 12 months - it was broken up into five or six smaller parcels and is no longer being used as a dairy.” That speaks volumes as to the health, and the future, of the industry.
Finally, with deregulation, the two major supermarket chains in Australia have been able to take advantage of producers. Coles and Woolworths have rewritten dairy farmer contracts in order to provide consumers with A$1 per litre milk, which has driven more out of the business. One report has suggested that by 2017, the average net dairy farm income in Australia will be zero. It is not a happy picture. The genius of regulation is that it does not allow supermarkets, processors or agri-business to unilaterally set the terms of sale with farmers, making these power asymmetries less compelling and destructive.
1 The entire article and newsletter (september 2015) is available from