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Dairy industry review commences following price cuts

Australia's competition watchdog said on Tuesday it has begun a broad investigation into the dairy industry in the world's fourth-largest exporter, after major processors angered farmers with a deep cut to the price they pay for milk.

Australia's largest dairy processor, Murray Goulburn, and New Zealand's Fonterra Co-operative Group in April slashed their farmgate prices by nearly 20 percent to a level below the break-even costs for many farmers.

The Australia Competition and Consumer Commission (ACCC) said it would focus its investigation on competition between milk processors, contracts between processors and farmers, global supply markets and the profitability of dairy farms.

Australia has made boosting agricultural exports a key goal amid a mining sector slowdown, a so-called "mining to dining" transition, but dairy farmers said price fluctuations means they cannot consistently boost supply.

Farmers said they expect the ACCC to recommend measures to remove inherent price volatility.

"Australia must look and examine what the next five, 10 and 30 years of dairy looks like and put a spotlight on the issues that are holding us back," said Adam Jenkins, a dairy farmer in Victoria.

A final report will be delivered to the government by 1 November 2017.

(Reporting by Colin Packham; Editing by Stephen Coates)


Industry response

The United Dairyfarmers of Victoria responded, praising the Australian Competition and Consumer Commission (ACCC) for taking a firm approach in its inquiry into the dairy industry, following the release today of the inquiry’s terms of reference.

“The ACCC has been given unprecedented powers in its inquiry including the ability to require companies into handing over information,” UDV President Adam Jenkins said.

“The inquiry is an important step on the path to reforming the dairy industry. Understanding the influences that contributed to this year’s industry chaos is important in ensuring we don’t ever repeat the milk crisis.”

Mr Jenkins said the UDV would contribute to the inquiry and urged others in the dairy industry to work together to solve issues currently affecting the sector.

“It’s vital that we uncover all the inefficiencies and inequities our dairy farmers face, and we agree an in-depth and independent inquiry will achieve a thorough and fair result,” he said

“We thank the Treasurer and the Deputy Prime Minister for their support of dairy farmers. The UDV strongly supports the ACCC in its investigation, because dairy farmers deserve fair returns at the farm gate, as well as transparency in milk price arrangements and supply contracts.”

The ACCC has said it will hold public forums in dairy producing regions to hear directly from farmers on their concerns, with a final report due to Treasury by 1 November 2017.

A separate ACCC investigation is ongoing into milk price cuts announced earlier this year by Murray Goulburn and Fonterra.

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