IN the wake of pandemic panic buying in supermarkets, the possibility of a first-ever permanent retail levy on a fresh food in Australia has emerged.
Leaders of the country's beleaguered dairy industry, along with agrifood experts and even political watchers, believe the mood has never been more ripe to get a legislated minimum price for a litre of milk on supermarket shelves across the line.
Years of devastation to a farming sector which holds strong affection in the hearts of Australians combined with growing consumer demands for provenance, low food miles and sustainably-produced food has set a new community sentiment.
Now, COVID-19 has added a food security demand that may just be the final element needed to reach a level of societal support for big change.
For those who have held some of the most influential roles in Australia's dairy industry, this is a remarkable development.
Sydney's George Davey was general manager of the NSW Dairy Corporation, a statutory authority that managed milk supply arrangements before deregulation in 2000.
The Dairy Corp - originally the Milk Board - bought milk from farmers in NSW under a quota system and supplied it to processors for the drinking milk market.
It set the processing, distribution, retail and farmgate price.
It owned and marketed brands like Shape and Moove and licenced processors to supply them. After deregulation, those brands were sold to private interests.
Farmers could trade their quotas on an exchange and any surplus milk they produced could be sold to processors for manufacturing products like cheese and ice-cream.
Prices were set via a formula in which costs of production for all those along the supply chain were plugged in. All were profitable.
"In today's dollars, consumers were paying more for milk yet there were never any complaints about the price of milk," Mr Davey said.
The regulated system had its roots in wartime, when governments sought to ensure its people and forces were fed. It's effectiveness in a business where farmers have no ability to 'play the market', and where the food produced is considered by society a staple, kept it in place for decades.
Emotions run high
Dairy deregulation is peppered with emotional terms: the milk mafia, Victorian milk trucks invading northern regions to tear down markets, industry exodus, the peasants and royalty.
How all that has led to a situation where in 2020 consumers are showing support for a legislated levy and asking why the industry was ever deregulated in the first place is a complex story.
Victoria's John McQueen was chief executive officer of Australian Dairy Farmers for 20 years until 2007.
He said the loss of Britain as a market for Australian butter, when she joined the European Union in the early 1970s, was a key turning point.
More money has always been paid for drinking milk, because farmers have to supply it year-round. Also, the drinking milk market is primarily supplied out of Queensland and NSW where costs of production are higher.
At the time of the butter market loss, Australia faced very high tariffs and barriers on its dairy exports to global markets. So Victorian and Tasmanian dairy farmers, who primarily produce for export, obviously started looking towards the more attractive fluid milk market at home, Mr McQueen explained.
When a free trade agreement with New Zealand saw tariffs on Kiwi dairy imports phased out in the 1980s, Australia's southern dairy business was even more at the mercy of a harsh global market.
Come the 1990s National Competition Council push to restructure the Australian economy and remove regulations to make it globally competitive, the die was cast .
"Assessments were made on the basis of a public benefit test," Mr McQueen explained.
"In the case of dairy, regulation was found to have a positive benefit apart from in Victoria where it was deemed the public was paying more for fluid milk than they needed to.
"So Victoria, which at the time produced two thirds of Australia's milk, removed all its regulations."
That meant for Victorian processors, trucking their cheaper milk north into regulated drinking markets was very attractive.
Deregulation was inevitable unless Australia was prepared to ban free trade between states.
"In the end, it was really a vote to agree to a deregulation package, rather than to deregulate or not," Mr McQueen said.
The Howard Government's $1.25b package, which allowed for dairy industry exits, was funded with the help of a 11 cents a litre on dairy beverages which ran for eight years.
Down, Down
What nobody foresaw in the lead-up to deregulation was $1-a-litre supermarket milk.
Coles' Australia Day 2011 'Down, Down' campaign slashed the price of homebrand milk to below the cost of producing milk in most regions.
The strategy was to bring customers into stores by accepting a loss on a product bought daily in the hope the traffic resulted in sales of higher-margin products. It's called a loss leader and it's a legitimate marketing strategy.
Other supermarkets followed that lead and within two years, farmgate milk prices for those supplying the domestic drinking milk market had fallen to all-time lows.
Mr Davey said as consumers became aware of dairy farms shutting up and the changes to rural and regional areas, sentiment turned.
"Meanwhile, provenance of food is gaining traction and distaste at the idea of food miles," he said.
"Now COVID-19 has brought food security to the fore.
"It's taken 20 years but I think everyone finally gets it."
For and against
The case for a retail levy is straightforward.
Dairy is unique. Milk has a tight shelf life. Farmers have to sell it as soon as it's harvested and that is why they are the ultimate price takers.
The laws of supply and demand have not worked so the argument that market failure has occurred in dairy has substance.
Without a permanent rise in the retail price of milk, many argue farmers will continue to be forced out.
Agriculture Minister David Littleproud is urging supermarkets to lift milk prices voluntarily.
Many producers say it has to be enforced.
ADF wants a divestiture regime amendment to the Food and Grocery Code.
Mr Littleproud this month said without a retail milk price rise "there won't be enough dairy farmers in this country to continue to supply fresh milk for all Australians."
The case against a levy, however, is also straightforward.
It's anti-competitive.
It would set a dangerous precedent.
Further, the trap would be in finding a mechanism that ensures the additional consumer dollars are transferred to those supplying fresh milk.
Any overarching rise in retail milk prices will draw milk out of manufacturing pools in southern Australia, where costs of production are lower.
Australian milk production is far in excess of what the domestic drinking milk market requires. For that reason, Mr Littleproud's claim is not quite right. If the price is right, milk is trucked.
Darwin, for instance, has milk in supermarkets but no dairy farms.
The bottom line is: What do consumers value and will they pay for it?
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