David Bushby (Tasmania, Liberal Party) Share this | Hansard source

The Senate Economic References Committee inquiry into the impacts of supermarket price decisions on the dairy industry was initiated as a result of serious concern in the dairy industry about the potential impacts on the industry of the decision of Coles decision on Australia Day this year to reduce the price of its home brand milk to $1 a litre. Parts of the dairy industry were already under stress at the time following significant challenges such as the Queensland floods and the price cuts were seen by many as an additional and unsustainable burden.

After a nine-month inquiry, the committee has produced a report which represents a considered and constructive approach to issues facing the drinking milk industry. I take this opportunity to thank the current and former members of this committee who participated in this inquiry, particularly Senator Eggleston who chaired the inquiry during the first hearings and for the interim reports. I also take this opportunity to thank the secretariat, particularly Richard Grant and Colby Hannan, for their hard work. I also thank Morana Kavgic for her assistance. Since deregulation, the dairy industry has become increasingly efficient and competitive. However, a reality that producers in the sector have to deal with on a day-to-day basis is that some large companies dominate the processing and retail aspects of the supply chain. This report particularly focuses on the impacts the price discounts were likely to have on the two smaller players affected by this structure, namely, consumers and dairy farmers.

It is important to keep in mind that the price cuts are good news for many consumers who are facing ever-growing cost-of-living pressures. In most cases, price discounting will be pro-competitive and of benefit to consumers. Provided it does not constitute predatory pricing, a retail price cut should not be discouraged. The committee was concerned, however, about the possible impact the price cuts would have on dairy farmers. Farmers in most states will be insulated from retail price cuts because their milk goes into manufacturing and export, and international prices play a key role. However, farmers in Queensland, New South Wales and Western Australia largely produce drinking milk for consumption within their states and are much more exposed to retail prices. The fact that changes to retail prices will affect some dairy farmers but are likely to leave the majority largely unaffected makes the search for appropriate solutions challenging.

There are also complex issues at play in the industry. The report observes that one of the key issues for the industry is the imbalances of bargaining power in the supply chain. Dairy farmers have to deal with very large processors. Companies which are involved in drinking-milk processing in turn have to deal with the two major supermarkets. While collective bargaining arrangements have been used by dairy farmers, evidence taken by the committee from government officials and the ACCC suggested that they could be used more effectively. The report calls for the government to facilitate a review of the effectiveness of the current laws and the use of collective bargaining by agricultural industries. The review should aim to increase farmers' awareness of these provisions and ensure that the current laws strike the appropriate balance.

The committee was also concerned about certain contract arrangements. There is a group of farmers in Queensland whose monthly incomes under their contracts fluctuate depending on whether a consumer chooses to buy a bottle of processor-brand milk or the supermarket's brand. Dairy farmers deal with processors and do not have a direct contractual relationship with the major supermarkets. The committee believes that these retail outcomes at the end of the supply chain should not impact farmers so directly. The management of the processors' brands should be a matter for them. The committee has accordingly called for changes to be made to these contract arrangements.

The committee also heard calls for various voluntary and mandatory codes of conduct and other suggestions for ways to facilitate engagements between farmers and those up the supply chain. The current dispute resolution arrangements in the grocery sector do not appear to be often used, and questions were raised about their effectiveness and relevance for some industries. The committee was acutely aware that it was tasked with examining developments in one part of the broader grocery sector. The issues that matter to dairy farmers may not apply to other supply chains. The report calls for the current voluntary dispute mechanism arrangements in the grocery industry to be reviewed. Such a review will allow all suppliers to be engaged and for other approaches that are being pursued overseas, such as in the United Kingdom, to be thoroughly examined.

The inquiry also heard calls from a number of stakeholders for amendments to Australia's competition laws. The ACCC undertook an investigation and found that Coles's conduct did not constitute anticompetitive behaviour under the current law. It did not appear that Coles' conduct was fundamentally anticompetitive, although some smaller competitors will find matching these prices on an ongoing basis challenging. The report does not call for specific amendments to be made to the Competition and Consumer Act as a result of the price discounts. The act applies to the entire economy. Changes to this law need to be carefully scrutinised, with the impact on all sectors assessed. However, the economics committee has heard over a number of years concerns from many stakeholders about Australia's competition laws. It has been some time since the last independent review of the competition provisions of the Competition and Consumer Act, and the report calls for the government to institute just such a review. This will allow a much needed assessment of the current law to be undertaken, with views from throughout the economy gauged and considered.

I again thank the senators who have participated in this inquiry. We hope that this report brings light to some of the challenges being faced by dairy farmers and suppliers in the grocery sector and, more generally, informs future debates and the development of policy in this area.