Save Australia’s Dairy Industry

Jun 25, 2020

When John Dahlsen tells us we need to pay more for milk and our dairy industry needs urgent government intervention we should sit up and pay attention.

John Dahlsen is a former chairman of Woolworths, a former long-serving director of the ANZ Bank and he was a councillor of the Institute of Public Affairs (IPA) which to this day advocates the neoliberal agenda of deregulation and privatisation and has copped a hammering recently from critics in Pearls and Irritations.

Dahlsen has written a 107-page report on our dairy industry that is a rattling good read. The former Woolworths boss knows the grocery business inside out and his comprehensive report makes points that may surprise readers — like Australians have some of the world’s cheapest milk and our New Zealand neighbours with their famous green pastures pay twice as much.

The centrepiece of Dahlsen’s recommendations is a price increase of 40 cents a litre paid straight to the farmer without deduction to the processor and taking the retail price of milk to $1.70 per litre. Australian dairy farmers are going broke at such a rate that Dahlsen predicts there will be nothing left but a cottage industry unless they receive this urgent intervention on price.

The straight-shooting Dahlsen traces recent retail history. “Coles \$1 milk was, as Adam Smith would describe, not self-interest but selfish. It had a short-term effect on competitive position but with the response of all of the retailers with the same pricing, the only consequence was an unconscionable impact on supply chain and dairy farmers in particular…..The retail oligarchy has ultimate control of the supply chain. Unless that fundamental issue is addressed by price regulation, there cannot be an effective and sustainable solution.”

John Dahlsen is a national treasure. He is a senior businessman who understands ideology and loves to quote Adam Smith but he is not ideological. He wirtes (on page 57): “It must be recognised that the problems of the dairy industry have arisen since — and because of — deregulation. The deregulation was influenced by the Hilmer Review on competition policy where it was believed there was no public benefit in regulating dairy. How wrong this turned out to be.” (Dahlsen’s emphasis)

Hilmer’s Australian competition policy received thorough analysis from former Greens Senator Dee Margetts, who reported on her studies in the Journal of Australian Political Economy, issues numbers 60 and 67 (2007 and 2011). The Margetts articles, like the Dahlsen Report, are recommended reading.

This was a sad period in Australian politics, well understood by Margetts. “The Hilmer report’s approach was applied to almost every aspect of Australian society via a compulsory (and draconian) national legislative review.” Hilmer favoured a branch of competition policy known as “contestability” theory associated with New York economist William Baumol. Contestability in this context is the ability of players to enter and exit a market.

“For those in favour of strong market deregulation, the Baumol theory places the hypothetical benefits of contestability and deregulation above the impacts of blown-out market shares and corporate market domination.”

Margetts quotes Professor Stigler on the conditions for market deregulation. Tall George Stigler and the more compact Milton Friedman were the John Nicholls and Bob Skilton of Chicago. Friedman roved the world kicking goals for the neoliberal team while Stigler directed traffic from the centre bounce. Australian economist Craig Freedman recognised Stigler’s importance in his book, Chicago Fundamentalism.

Australia’s dairy farmers, like many others, have fallen prey to the take-no-prisoners culture of contemporary academic economics. Craig Freedman has an interesting view that relates the ugliness of mainstream economics to the influence of the Cold War that pushed economists “to adopt the zero-sum tactics of the court room rather than the mutually beneficial manners of the senior common room.”

John Dahlsen’s project sounds suspiciously like the views of Country Party members when I reported the WA Parliament in the 1970s. Their preference for “orderly marketing” was mocked, first by a group of MPs known as the “Dries” who came from farming backgrounds and fancied themselves as economists (Bert Kelly, John Hyde, Peter Walsh etc) and then by the neoliberal ascendancy only now fractured, at least temporarily, by the pragmatic Scott Morrison and Josh Frydenberg who are “Keynesians in a foxhole.”

Our dairy farmers have been swept aside in the era described in one incendiary paragraph by Evan Jones of Sydney University in his Pearls and Irrigations post of 8 April. “This is ground zero. The past is irrelevant. An age of stunning intellectual vacuity. The arguments were all bullshit, floating on nothing. Neoliberalist tenets, unlike those of classical liberalism, had no organic relation with existing conditions. Neoliberalism was a vehicle for plundering public assets, exploiting small business, undermining hard-won workforce conditions and dismantling the hard-won welfare state.”

I retain the same sense of astonishment that struck me when I first wrote about these matters 25 years ago — astonished by the arrogance of governments implementing such radical, reckless, wrecking-ball policies based on flimsy theory and giving unfettered power to people like Fred Hilmer and Graeme Samuel.

I know farmers whose milking cows are part of the family. Our pet calf was called Friday because that was the day we found her. She loved the carrot and celery pulp from the vegetable juicer. Eventually she wandered off with the station herd but returned to visit from time to time, still answering to her name.

Farmers are important. We need the food and fibre they produce but most of all we need them. We need their knowledge and work ethic. Even the dismal science of economics should have room for common sense. There is no point having the world’s cheapest milk on our supermarket shelves if we no longer have cows grazing on Australian pastures.

As an economist, corporate lawyer and business leader, John Dahlsen understands the theory better than most but he is a man in a hurry who says the industry’s need is urgent — a matter of weeks rather than months. If Honourable Members could put down their texting telephones for an hour and read his report I am sure they would agree with him. Asking shoppers to pay an extra 40 cents a litre to keep our dairy farms viable sounds like a good deal.

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