Life After Reform? Australia?s Dairy Deregulation
On May 18, GMF hosted an event on lessons in adjustment for the United States and Europe from Australia's dairy deregulation experience. The event featured John McQueen, CEO of Australia Dairy Farmers Limited, and was joined by panelists, Connie Tipton, President and CEO of International Dairy Foods Association (IDFA); Jean-Marc Trarieux, agricultural attaché at the European Commission; and Robert Gray, Executive Director of the Council of Northeast Farmers Cooperatives. GMF Transatlantic Fellow Susan Sechler moderated the event.
Mr. McQueen opened the event with a concise summary of the history of Australia's dairy industry, emphasizing their role at the forefront of deregulation adjustment in a multitude of sectors. In the past 35 years, change has occurred as a result of global market shifts, intentional government policy, and intensive natural phenomena, namely drought. In the early 1970s, the United Kingdom entered the European market and Australia lost their major export market virtually overnight. In the following decade, supports and trade barriers grew as the Australian government struggled to keep the industry afloat.
Eventually a definitive decision was made to cut the industry loose, to deregulate and to allow the market to take its course. This move was made easier with a fortuitous free trade agreement that was signed with New Zealand at the same time. In 1986, the federal government introduced measures to drastically cut market support. This was intended to be severed completely by 2000 after the dairy industry supports failed to pass the National Competition Policy Test. This move was aimed at galvanizing market reform and improving production efficiency.
According to Mr. McQueen, New South Wales gave the most state support to this policy change, as it had been producing two-thirds of the total dairy production and receiving only 6 percent of the subsidies. A public opinion poll at the time showed 94 percent of Australian dairy farmers were in support of deregulation. Of the total AUS$1.63 readjustment package, AUS$1.2 was tax neutral. Over the two-year process, the efforts of a strong grass roots organization and lobby effort with excellent communications capabilities proved to be fruitful. Only 7 percent of Australian dairy farmers opted to take the out option provided by the readjustment. Subsequently, all prices went up post-regulation. Consumers paid the subsidizing cost for adjustment, but ultimately received the difference in more competitive market prices.
Connie Tipton praised the leadership of the Australia Dairy Farmers Limited and that of the Australian farmers who led the restructuring push. She acknowledged that global demand was the enabler of this market shift, especially since domestic agricultural markets tend to get trapped in their own systems. In the case of the United States, Ms. Tipton stressed that the export market in dairy is growing therefore market opportunities are strong. Consequently, many organizations are now agreeing with IDFA's position that subsidies should be scrapped. According to Ms. Tipton, the main obstacle to deregulation in the U.S. is Washington-based politicians who appear to be oblivious to popular opinion. They are sticking to the current subsidy program, which is ineffective with such high market prices.
Jean-Marc Trarieux followed with the European perspective, explaining the EU's long history of, "simple tools," used in the dairy industry such as export supports, quota systems, and direct payments. While he admitted that EU prices are above world market prices, he said that there is a strong movement for reforms among the diverse 27 member states. In the context of deregulatory reform, Agriculture Commissioner Mariann Fischer Boel has apparently sent the signal that some phase-out of the quota system should be anticipated in the future. Moreover, the 2008 CAP Health Check will include some dairy policies. Trarieux also said the number one concern for the EU dairy industry is improving its structural competitiveness, since the market is experiencing a huge expansion in demand and the EU's market share is declining.
Robert Gray, representing the Council of Northeast Farmers Cooperatives, said the opinion of many dairy producers that the public wrongly perceives the amount of subsidies that U.S. dairy farmers have received. On the contrary, he claimed that this money is actually going to producers. The huge market fluctuations make it very difficult for farmers to adjust and they have steadily lost their price of the consumer dollar. Exports, growing due to a higher worldwide demand for protein, are still only 7-8 percent of total production. In order to help the farmers faced with these market fluctuations, the U.S. needs to expand its export markets. In terms of the upcoming Farm Bill, Gray predicted that Congress will not make any big sweeping changes because of the polarizing nature of this issue.