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Dairy Produce Bill 1986 (Bills Digest, no 63, 1986)

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					86/63




Date introduced :                     7 May 1986
House:                                House o f Representatives
Presented by:                         Won. John Kerin, M.P.,
                                      M i n i s t e r f a r Primary I n d u s t r y



Purpose

                  l o e s t a b l i s h new marketing arrangements f o r t h e
Australian dairy industry, involving reform o f the
A u s t r a l i a n D a i r y C o r p o r a t i o n (ADC) and t h e i n t r o d u c t i o n o f
new support mechanisms.

Background

                  I n May 1985, t h e ~ o v e r n m e n t i n t r o d u c e d 4 B i l l s i n t o
t h e House o f Representatives t o r e f o r m d a i r y m a r k e t i n g
arrangements ( b u t n o t t o r e f o r m t h e ADC) i n a package t h a t
became known as t h e K e r i n P l a n (see t h e D i g e s t f o r t h e D a i r y
                ~         e t
P ~ o ~ u c ea r ~ Support Levy B i l l 1985). The i n t r o d u c t i o n o f
r e f o r m proposals was i n ~ e s p o n s et o t h e f a l l i n r e t u r n s t o
t h e i n d u s t r y which was p r i m a r i l y due t o t h e d e c l i n e i n w o r l d
market p r i c e s and t h e e x i s t i n g marketing arrangements.                        The
need f o r r e f o r m has n o t diminished, s i n c e w o r l d market
p r i c e s remain depressed and a r e n o t expected t o improve f o r
several years.                Large s t o c k s o f d a i r y products i n t h e
European Community and t o a l e s s e r e x t e n t t h e U n i t e d S t a t e s
and r e l a t i v e l y weak w o r l d i m p o r t demand a r e t h e main f a c t o r s
c o n t r i b u t i n g t o depressed i n t e r n a t i o n a l d a i r y product
prices.             The Bureau o f A g r i c u l t u r a l Economics (BAE) i n May
1986 f o r e c a s t t h a t t h e average gross u n i t r e t u r n f o r
manufacturing m i l k would f a l l from 13,9 c / l i t r e i n 1985-86
t o 13.3 c / l i t r e i n 1986-87.

                                                                             s
               The e x i s t i n g m a r k e t i n g a r r a n g e ~ i ~ n t have d i s t o r t e d
                                                                        u
p r i c e s i g n a l s t o producers and e n c o ~ r a g es~ r p l u s p r o d u c ~ i o n
and have r e s u l t e d i n t h e manufacturing m i l k s e c t o r b e i n g one
o f t h e most h i g h l y a s s i s t e d s e c t o r s o f A u s t r a l i a n i n d u s t r y .
                                                                rv e
For example, i n 1983-84, t h e e f ~ e c ~ ~ a t e o f a s s i s t a n c e t o
86/63                                    - 2 -


t h e manufacturing m i l k s e c t o r was 57 p e r c e n t compared w i t h
11 per c e n t f o r a g r i c u l t u r e as a whole and 25 p e r c e n t f o r
manufacturing i n d u s t r y * ~ ~

                 There have been t h r e e p l a n s t o r e s t r u c t u r e t h e
m a r k e t i n g arrangements and t o i n c r e a s e t h e exposure o f t h e
i n d u s t r y t o market f o r c e s , t h e K e r i n Plan, t h Rowley Plan
and t h e m o d i f i e d K e r i n Plan which i s t o be i n t r o d u c e d by
this B i l l -

               Under t h e K e r i n Plan, t h e e x i s t i n g s t a b i l i s a t i o n
and equal i s a t i o n a r r a n g e m ~ n t s f o r b u t t e r , cheese, skim m i l k
powder, whole m i l k powder and c a s e i n were t o be replaced
w i t h a system o f support payments on a l l manufactured d a i r y
products exports.                 These support payments were t o be funded
by a permanent l e v y on t o t a l m i l k p r o d u c t i o n ( t h e market
support l e v y ) and a temporary l e v y on domestic s a l e s o f
c e r t a i n p r e s c r i b e d products ( t h e d a i r y products l e v y ) .       The
market support l e v y was t o f i n a n c e market support payments
which were meant t o increase r e t u r n s on manufactured d a i r y
~ r o d u c t s e x p o r t s t o a t a r g e t p r i c e , e ~ u i v a l e n t t o 130 p e r
cent o f estimated average e x p o r t r e t u r n s r e c e i v e d f o r each
product i n t h e most r e c e n t two years and t h e c u r r e n t year.

              As t h e market support payments would p r o v i d e l e s s
assistance t h a n had been t h e case?, p a r t i c u l a r l y f o r b u t t e r
and cheese, a temporary d a i r y products l e v y was t o be
imposed on these products t o f i n a n c e supplementary market
s u p p o r t payments, w h i c h w o u l d i n c r e a s e t h e l e v e l o f
assistance p r o v i d e d above t h e t a r g e t p r i c e .

             A c o n t r o v e r s i a l f e a t u r e o f t h e P l a n was t h e method
o f withdrawing t h e d a i r y products l e v i e s and t h e r e f o r e t h e
supp~ementary market support payments,                                They were t o be
phased o u t under a f o r m u l a which was designed t o reduce t h e
l e v i e s over a p e r i o d of two t o s i x years, w i t h t h e t i m e
                n                                                         e
~ ~ p e n d ~ on g t h e r a t e a t w h ~ c h p r o d ~ ~ t i o ln v e l s and/or
market m i l k p r i c e s declined.                I f production d i d not decline
o r i f market m i l k p r i c e s rose, t h i s form o f support c o u l d
have been w ~ t h d ~ a w inn j u s t two years.                 The i n d u s t r y w a n t ~ d
slower and more p r e d i ~ t a ~ withdrawal le

                                                    y
               The Senate s u ~ s t a n t i a l ~ amended t h e l e g i s l a t i o n
f o r t h e K e r i n P l a n i n o r d e r t o overcome what i t considered
                                                      tr~                    t
t a be m a j o r s h o r t c o m ~ n ~ s * ~ ~ w e v e h e ~ o v e ~ n m e nwas not
               a     h
p r ~ p ~ r te t~ a t t i m e t o a l t e r t h Plan, and t h e r e f o r e t h e
K e r i n P l a n d i d n o t pass %hrough t h e Senate.              ~onsequently
t h e e ~ t ished market ing arrangement s con%1’ nued t o operate
                  a ~ ~
l a r ~ e ~ ~ ~ h a n g et d r Q u ~ h o u t~~8~~~~~ I n an e f ~ o r t o break
             uy              h
86f 6


        Cal cu9 a t 7" on o f Market
                               ~   ~   9       _   1   1




            The ~ u r r ~ n r o ~ o s a p r
                                 pt             ~                        s t h a t t h e support r a t e
will     be d ~ t e r m i n e d irs d i f f e r e                             f o r p r e s c r i b e d and
                                                                                         teermi ne which
                                                                                                criteria
                                                                                                prod u e t s
                                                                                      t h e i r estimated
                                                                                   r a t e w i l l apply
                                                                                     t o finance t h i s


                The ~ o r p o r a t ~ ow i l l now be iven cons iderabl y more
                                       n
                                          rn
d ~ ~ c r c ? t i oi n ~ ~ t e r m ~ n i n ~ s u p ~ o r t r a t e s t h a n under
t h e o r i g i n a l K e r i n Plan, A             rate may be s p e c i f i e d for
any p a r t i c u l a r p r o d u c t b               Corporation        with the
~ o n ~ u ~ r ~ n c hee ~ x e c u tve ~ o u n 1 ~ t h e ADIC,
                     of t                 i          c                    T h i s may
occur i f e x p o r t p r i c e s ~ n c ~ e a steo        t i v e l y high levels.
Also, the ~ o r p o r a t ~ o w i l l b n                   ed d i s c r e t i o n i n
                       m
~ e t e r m i n i n ~ arket support r a t e s f o r n o n ~ p ~ e s c r i b e d
~ r ~ ~ u ~ t ~
            0




           A ~ e p a r a t e f o r m u l a will be used t o c ~ ~ e ~ ~h e a t e
                                                                      t ~
 i t ?
ra c    o f market support ~ ~ a y m ewhen t h e u n d e r w ~ i t i n g
                                                   ~,~
                                     e
a ~ ~ a ~ a r e~ t ~ i e w n d t by a p r i c e f a l l , as o ~ t l i n e d
                ~          r               ~
bel ow,

( i'r 1 U       n          ng
                      ~ t ie ~
                           I       ~       ~       ~
                A    C o m m ~ n t~ h~ ~ u ~~
                                          a              e pra y ~ u t ~ w~i l l ~ be
                                                                 ~ o     d               ~
                    when t h e a      ~ av  ~                        u       ~for any
                                                                             port ~ p r i c e
                                                     per cent o f t h e e x p o r t
p r i c e t h a t the                              l
                            e s t i ~ a t e sw o ~ ~ r~e v a i ?i f e x p o r t p r i c e s
                                              d line.       The ~ o ~ ~ o n ~ e a ~ t h ' s
u ~ ~ e r w r i t i~no~n~~ r i b u . ~would take t h e form o f a payment
                                         ~on
i n t o the ~ a r k c ? t
                        Support Fund,

                                                                     rate      of   ma
   ment ,Far t h e pr
           xpoert p r i c e and a t a




                                                                 on 1 J u l y
                                                           $9"    a19 p r o ~ u c t
                                                                      e phased o u t i n f i v
86/63                                 - 5 -

equal steps a t s ~ x ~ m o n t h ~ y t e r v a ~ c o m ~ ~ n c i n g J u ? y
                                               ~n             s                1
1987.           For b u t t e r and ~ u t t e r o ~ h e r a
                                                     tl           o f product l e v y
w i l l be reduced t o about h a l f i t s i n i t i              v a l u e by 1 J u l y
1989, b y means o f f i v e equal r e d u c t i o n s a t s i x monthly
i n t e r v a l s c o m m ~ n c ~ n g J u l y 1987,
                                    1                      Subject t o a r ~ v i e w
d u r i n g 1988-89 ~ o ~ ~ i r m it h e d s i r a b i l i t y o f phasing o u t
                                            ng
                                                         e
                        b u t t e r a ~ t o g e t h ~ trh~ l e v y would then be
                     50 per tonne every s i x months u n t i l c o m p ~ e t e l y
phased out,

(iv)     I n c r e a s e -in ~ o ~ e ~ t ~ c

                 Under t h e c u ~ r e n t p r o ~ o s a ~ t h e    d~mestic price
support v a l u e o f b u t t e r will be increased by             5 per cent on 1
J u l y 1986 w h i l e t h e domestic p r i c e support            v a l u e o f cheese
w i l l r i s e 8 p e r cent on t h e same date, p r i o r         t o t h e i r phased
r e d u c t i o n c o m m e ~ c ~ n1 J u l y 1987,
                                   g

(v)     Suspension o f Market 5u~1porr.t Levy
                    - - 1 _ 1
                   - - 1 1 1 .




                                                                    ill 1986 w i l l
                                                                  o f t h e market
support l e v y and hence market support payments.                      Ariy S t a t e
Minister w i t h p o r t f o l i o r e s p o n s i b i l i t y f o r the d a i r y
i n ~ u s t r y may n o t i f y t h e on e a l t h M ~ n ~ s t e o r ~ r ~ m a r y
                                                                     fr
Industry t h a t t                                              I~
                                     hould be ~ u s p e n ~ e d n t h e
such riot i f i c a t                n t advice will be sought
m a t t e r from t h e E             e Council of t h e ADIC.         This advice
is t o be r e c e i v e d by the A u s ~ r a ~ ~Aa ~ r ~ c u ~ t uCouncil,
                                                           n               ra~
con side red^ and a d e c i s i o n aken w i t h i n 60 days o f t h e
not i f ic a t ion be.i ng r e c e i ved y t h e C o ~ ~ o n w e a l M hn i s t e r .
                                                                         ~i
A t t h e end o f 60 days, unless t h e A u s t r a l i a n A g r i c u l t u r a l
                                                      t t
Council b y m a j o r i t y d e c i s i o n r ~ s o ~ v hea ~ t h e ~ e v yshould
not be suspended~ t h e l e v y i s t o be suspended as soon as
practicable.

           The B i l l s a l s o p r o v i d e f o r t h e r e f o r m o f t h e
Austral iarr Dairy C o ~ ~ o ~ a t i oSuch ~ e ~ t a k ers ~a c c o ~ n t o f
                                            fl~            o
t h e changes t o be made i n d a i r y i n d u
                                                                                  s
marketing a r r a n ~ ~ m ~ f and g i v e s e f f e c t t o t h e ~ ~ v e r n m e‘n t
                                      lts
general p o l i c y on ~ e ~ o o f i ~ o m m o n ~ e ,~ ~~m~a ~ d u s t r y
                                          r                   ~~            r
                                                                           ~ny
S t a t u t o r y ~ a r k e t i n g Aut   i t i e s as d e ~ ~ r i b i ~ d a Paper
                                                                       n
released i n January 1986,


          For a ~~~~~~~d            s i s o f t h e c ’ ~ a o f st h~ ~ i l l
                                                            ~       e B
refer t o the E x p ~ ~ f l ~ t o r ~
86/63                                     - 6 -


                  The o b J e ~ t ~ v o f t h
                                          e           AD6      -  t o enhance t h e
p r o f i t a b l e p r o d u c t i o n and m a r ~ e t i n g o f A u s t r a l i a n d a i r y
produce      -      and t h e f u n c t i o n s o f t h e ADC        - a l l o f which
i n v o l v e t h e marketing o f A u s t r a l i a n d a i r y produce               -  are
s p e c i f i e d i n clauses 6 and 7 r e s p e c t i v ~ l y .

            Clause 8 p r o v i d e s f o r M i n i s t e r i a l d i r e c t i o n s t o t h e
Corporation;        d i r e c t j o n s must be t a b l e d i n t h e Parliament
unless t h e r e i s a c o ~ e r c i a ? r n a t i o n a l i n t c ! r e s t reason why
                                            o
t h e y should n o t be d i s c l o s e d .

             Clause 10 s p e c i f i e s t h e power o f t h e ADC t o deal i n
d a i r y produce.  ~ e n e r a l lt h e ADC may o n l y ngagc! i n e x p o r t
                                         ~
s a l e s b u t i n e x c e p t i o n a l circumstances may engage i n
domestic sales.

                  Clause 11 w i l l r e q u i r e t h a t t h e a c t i v i t i e s o f any
s u b s i d i a r y o f t h e ADC must f a l l w ~ t h ~ h e ADC's s p e c i f i e d
                                                               t n
functions.

             Clause 16 r ~ q u i r e s t h e ADC's Annual Report t o be
presented t o a meeting o f t h e A D I C and t h e Chairperson o f
t h e C o r p o r a t i o n t o r e p o r t on i t s a c t i v i t i e s and answer
questi~~s~

                                           o
                  The ~ r ~ p a r a t i o n f ~ o r p o r a t e plans and annual
o p e r a t i o n a l plans a r e d e a l t w i t h i n clauses 17-22 and 23-26
                          Ma
r e s p ~ ~ t i v e l y ~ t t e r s t o be i n c l u d e d i n t h e c o r p o r a t e p l a n
                           t~
a r e s p ~ ~ i F i e d h e s e i n ~ l u d et h e C o r p o r a t i o n ' s goals, i t s
s t r a t ~ g y f o r achi                       oals, i t s assessment o f t h e
in d u s t r y ' s economi                        t h e circumstances i n which
1 ~ c e n c ~ ~ x p o r t e r s w i l l be r e q u i r e d t o d i s c l o s e t o t h e
                    d
                               a?
~ o r p o r aion c o ~ ~ e r c i i n f o r m a t i o n
                 t                                            c l a u s e 53), and t h e
~ r ~ t e fr o~ a e t e r m i n i n ~ r a t e s o f
                      r d                                    rt f o r various d a i r y
products ( c l a u s e 1 7 ) .                                              ~
                                     The need and ~ r o c e d u o r~ o b t a i n i n g
~ i ~ ~ approval f ~ r b o t h~ p ~ ia n si s s p e c i f i e ( c l a u s e s 18
                         ~ ~       o ~                  a 1
and 24),

               A person may n o t be ~ o m i f l a t e df o r m e n i b ~ r s h ~o f t h e
                                                                                    p
                               q                          ns
ADC unless t h e y h a v ~ u a l ~ ~ ~ c a t i oand/or e x p ~ ~ i ~ n~ onee        i       c
o f t h e f o ~ l o ~ i nFge ? d s o f a c t i v i t y : m i l k p r o u c t i o n ; t h e
                           i
p r o d u ~ ~ i osale o r e x p o r t o f d a i r y ~ r o d u c e ~t h e o p e r a t i o n
                    n~
                                                           p ~ c e o
o f d a i r y f a c t o r ~ e s o r f ~ ~ ~ o r o d u~ ~ n g s t h e r food
                                                      f i nance;       if l t e r n a t i ~ n a l
                                            ent;            law;     or ifldust~ial
re1 a t i o n s ( sub-cl ause 30( 1 1
86/63                                     - 7 -


                 Clause 33 provides t h a t t h e ADC w i l l comprise a
f u l l - t i m e ~ a n a g ~ director^ a p a r t - t i m e Chairperson and
                              n ~
p a r t - t i m e Government member, a l l chosen by t h e M i n i s t e r , and
8 p a r t - t i m e members, nominated by t h e S e l e c t i o n Committee,
               The powers of t h e ADC t o e x e r c i s e c o n t r o l over
e x p o r t s o f d a i r y produce are p r o ~ i d e df o r i n clauses 51-54,

                 Clause 86 e s t a b l i s h e s t h e Dairy I n d u s t r y Fund as
t h e successor o f t h e long-establ ished D a i r y I n d u s t r y
S t a b i l i s a t i o n Fund, The purposes f o r which t h e Fund may be
used w i l l now be s p e c i f i e d i n t h e Act (sub-clause 8 8 ( l ) ) ,
                                                       ~ a ~
and t h e r e q u i rement f o r ~ i ~ i i s t e rapproval o f expenditures
w i l l be r e p l a c e d w i t h a requirement f o r approval by t h e
Executive Council o f t h e ADIC (sub-clause 8 8 ( 2 ) ) ,

              Clause 92 e s t a b l i s h e s t h e Market Support Fund, i n t o
which funds from t h e market support l e v y i s p a i d and out o f
which t h e market support payments a r e p a i d t o manufacturers
on e x p o r t o f d a i r y produce,              The standard r a t e o f market
support payment f o r each d a i r y product w i l l be 30 per c e n t
o f i t s e s t i m a t e d e x p o r t p r i c e , a l t h o u g h s p e c i a l r a t e s may
apply i n v a r i o u s circumstances i n c l u d i n g f o r u n d e r w r i t t e n
d a i r y produce, as o u t l i n e d i n t h e background s e c t i o n above
( c l auses 95-98) , The Corporation w i 11 pub1 ish i n advance
t h e r a t e o f market support p a ~ m e n t t h a t i s t o apply t o each
product ( c ?ause 9%)        a



                 C l a u s e 103 e s t a b l i s h e s     the     Dairy         Produce
Supplementary Market Support Fund, i n t o which funds from t h e
d a i r y products l e v y i s p a i d and o u t o f w ~ i c h supplementary
market support p ~ y m e n t are p a i d t o manufacturers on e x p o r t
                                       ~
o f d a i r y produce.          Clause 105 p r o v i d e s t h a t supplementary
market support payments w i l l be made whenever a market
support payment i s made,                 As w i t h market support payments,
supplementary market support payments f o r each d a i r y product
w i l l n o r m a ~ l ybe a s p e c i f i e d percentage o f t h e i r estimated
                                                         a ~
export p r i c e , w ~ t h t h e p e ~ ~ ~ n tb e i n ge t h e same f o r a l l
products ( c l a u s e 106)             The p e r c e n t a ~ e ~and t h e r e f o r e t h e
                              w
r a t e o f ~ a y m e ~ ti l~l be ~ ~ ~ d a i n e n t a ~ ~ e r m i n e d by t h e
                                                                 de l y
r a t e o f d a i r y products l e v y , which as o u t ~ i n e dabove w i l l be
p r o g r e s s i v e l y p ~ a o u t e~ o m m e n ~ I n J u l y 1987.
                                 ~       ~            i ~



                 A ~ e ~ u icn ~ h e ~ u ~ ~ o fe d a i r y farms over t h e
                                      t ~ o ~ b r
next few y                        s
                              ~ i ~ i n w i ts b
                                       ~     a         II   the e x i ~ ~ i n ~
o v e r p r o d u c t i o n and 1ow r ~ t u ~ n ~
                                               e               t o t a l number
o f d a i r y farms i n A u s ~ r a ~ h~ a              o n ~ o if o~r ~many
86/63                                - 8 -

years.         For example, t e t o t a l number ( o f rural holdings
w i t h 30 or more milk c a t t l e ) has f a l l e n from about 37 5OQ i n
1971 t o 27 200 in 1976, 20 200 i n 1981, and 18 900 i n 1985.
Likely f u ~ u r eadjust men^ was discussed i n a recent a r t i c l e
on t h e ~ e d ~ u m ~ t e o u t l o o k f o r t h e A u s t r a l i a n d a i r y
                            rm
1’ nd u st r y [51
           e



         The following conclusions were drawn about future
adjustment in t h e Australian d a i r
     The present trend of a slow r a t e of e x i t from the
     industry i s expected t o continue. Farm numbers are
     projected t o d e c l i n e t o around 16 240 by 1990 from
     18 930 i n 1985, w i t h the average size of farms
     continuing t o r i s e ,            Australian milk production
     should remain a t around 6000 ML. u n t i l 1987-88 and
     then, r e ~ l e c t ~ n the impact of support prices f o r
                                  g
     m a n u f a c t u r i n g mil k a p p r o a c h i n g import p a r i t y ,
     o u t p u t i s f o r e c a s t t o f a l l t o about 5500 ML i n
     1989-90.
              T h i s B i l l fornis p a r t o f a l e g i s l a t i v e package
d e a l i n g with the d a i r y industry,       The other Bills i n the
package a r e :
                                                     986 ( B i l l s Digest
                                                    1986 ( B i l l s Digest




        86/68)
         For further information                  i f requi reds contact the
Economics and Commerce Group


11 June 1986
86/63                                  - 9 -




1.     Bureau o f A g r i c u l t u r a l Economics
                             , V o l e 8, No. 2,
2.                           ance Commission,

3.     Sarah Sargent , 'UDV Votes f o r K e r i n P l a n '           i n Austral i a n
                          4 December 1985.
                             I)

4.

5.
                                      Vol.     8,    No,




@    Commonwealth o f A u s t r a l i a 1986

                    e           extent o f               ses p e r m i t t e d under t h e
                            1968, no p a r t o f t h i s p u b l i c a t i o n may be
                            t r a n s m i t t e d i n any form o r b y any means,
i n c l u d i n g i n f o r m a t i o n storage and r e t r i e v a l system, w i t h o u t
t h e p r i o r w r i t t e n consent o f t h e Department o f t h e
Par1 i ~ m e n t a r y L i b r a r y ,        Reproduction i s p e r m i t t e d by M~mbers
o f t h e Parliament of t h e ~ommonwealth i n t h e course o f t h e i r
o f f i c i a l duties.

				
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Description: Dairy Produce Bill 1986 (Bills Digest, no 63, 1986)