Dairy industry

I wish to make a contribution to this motion that Mr Purcell has brought to the chamber:

That this house notes the results from the initiatives taken by the Victorian government following the 2016 dairy clawback by Murray Goulburn and Fonterra, including —

(1)   if the results of the Victorian state-funded initiatives for agriculture are working; and

(2)   whether other interstate or overseas models would help improve the viability of agriculture in Victoria.

I must say it is a worthwhile motion that Mr Purcell has brought to the chamber, and the Liberals and The Nationals will not be opposing this motion.

It gives me much pleasure to follow on from Ms Shing, because there is no doubt Ms Shing has been reading the theory books in relation to agriculture and has given us a very good summary in relation to that. Ms Shing, I agree with many of the things you said during your contribution — I absolutely agree with a lot of the things you said — and there are also some that I do not agree with, and I will probably take up some of those on the way through.

One thing in relation to farming is that there is no doubt that there are peaks and there are troughs. Whether it is dairy, the grain sector, horticulture or red meat — whatever farming sector it is — there are ups and downs. While one commodity will be up for a while, as sure as the sun will come up tomorrow there will be a down period in the future. That is the cyclical nature of farming, and it is one of the things that farmers certainly know when they go into the business, but that does not make it easy for them. Certainly they do reap the rewards when times are good, but they do know that there will be difficult challenges around the corner, and farmers are some of the most resilient people around in terms of being able to deal with that.

There is no doubt that dairy farms have had some challenges over the last couple of years with the clawbacks that were undertaken by Murray Goulburn and also Fonterra, which in effect saw farmers having to pay back money that they had already been paid by those organisations. From a farming model perspective, quite often the money that they would have received as part of those dairy cheques would have already been expended in other areas, so it is not as if that money was just sitting around and they could give it back. There is no doubt that it caused a whole range of problems for dairy farmers along the way, and that is not the way we like to see business conducted anywhere. Anything that has a retrospective element to it causes problems because people do not necessarily see it coming, and when a decision is taken by some power to make something retrospective, it has consequences all over the place.

One of the things I do want to make mention of today is in relation to the plight of dairy farmers. One of the reasons they are doing it fairly tough at the moment is not purely based around price, although obviously the price of their product is a considerable factor. As Ms Shing said, the input costs are something that dairy farmers — and all farmers unfortunately — have to take into consideration when it comes to farming.

I am off a farm myself. I am off a grain farm, which also in its past has run cattle and sheep. There was no dairy at our farm or up in the north-west part of Victoria where I come from, but my electorate, across the northern part of Victoria, has considerable dairying in it. As we know, there are three different dairy areas: up in the north; down in the Western District, where Mr Purcell is from; and down in Gippsland, where Ms Shing is from, in Eastern Victoria Region. Each of those three dairy regions is very critical to Victoria's overall status as the number one dairy-producing state for the whole of Australia. From a fairly small landmass our contribution in terms of dairy is significant. Some two-thirds of the whole of Australia's dairy production — and it is even higher in exports — comes from Victoria, but unfortunately that has slipped in the last couple of years.

One of the real issues that the dairy farmers are facing now in relation to their input costs is the price of energy. As we know, energy prices are starting to spiral northwards, and every person, when they get the mail and it is their electricity bill or it is their gas bill, just dreads what the number is going to be inside it because one thing that I can guarantee is that it will be a whole lot bigger than the last one. Industries such as dairy are fairly energy consumptive in terms of undertaking their production, whether that is in refrigeration costs, the actual operation of the dairy itself or the cost of energy to run irrigation pumps and so forth. With the dairy process, dairy farmers are milking two or three times a day, so it is not just once per day but they are doing it on multiple occasions, and essentially that in some ways triples the energy that they use because of the production process that they do two or three times per day.

What we have seen is some businesses having significant increases in their energy costs to run their dairies, to keep the milk refrigerated, to run the irrigation pump and to grow the grass that their stock eat from and produce the milk from. There are examples of dairies which have had, in the last couple of years, up to 300 per cent increases. I was speaking to a dairy farmer just yesterday, and a lady told me that at her dairy farm they have had increases of some 300 per cent. That is a big increase, by anyone's imagination, when you get your electricity bill and it is 300 per cent higher than what it was previously or in the previous couple of months or couple of years.

I can give you some specifics. Alanvale Dairy in Hawkesdale, down in the western district, has had a 43 per cent increase in its electricity costs in 2017 alone — a 43 per cent increase, and we are only in August. We have only been going for eight months of the year, and they have had a 43 per cent increase. Kyvalley Dairy Group up near Kyabram has had a $48 000 or 23 per cent increase in 2017. Think about the poor old dairy farmer who has had the clawback of their income last year from some of these dairy companies and who has then been hit with the double whammy of having much higher energy costs to the tune of Kyvalley's increase — $48 000 in just the first eight months of this year. That really hurts.

The problem we have with energy prices going up is that it is not as if you can look at weather conditions or anything like that as the cause of it. I know Mr Barber is going to disagree with what I am going to say, but there have been a whole range of government policies undertaken by this government — this Labor government right here — that have caused energy prices to go up. I do not think Mr Barber would disagree with that.

Mr Barber — Yes, I do.

Mr O'SULLIVAN — Mr Barber, I have just demonstrated Alanvale Dairy's 43 per cent increase in their electricity prices in eight months. The reasons for those electricity prices going up include that Hazelwood power station, which was producing 22 per cent of Victoria's electricity, has closed. Yes, Hazelwood was an old plant. It was not the cleanest power-producing coal plant that we had going round, and no-one disputes that. It was always going to close, but I think it should have been done over a staged process and not done in the hurry that it was.

We know very clearly that this government had a policy to close Hazelwood. They went to the 2010 election with a policy to close Hazelwood. But what I find is even worse with this current government is they did not actually have a policy to close it at the last election but what they have done is they have brought about the closure of Hazelwood through the back door. What they did in last year's budget was put in a $252 million coal tax, and the impact of that coal tax on those companies was to really put the pressure on them until it got to the point where it was not viable for them to operate with a tax hanging over their heads that they were forced to pay as a result of the policy of this current Labor government.

So the decision was made that it would close, and as a result of that we have seen skyrocketing power prices right around the state. Anyone who has got businesses that rely on energy, whether that be gas or electricity, is really feeling the pinch of increased power prices. That is one of the major reasons why the dairy industry is struggling. It is not just prices — that certainly hurt them — but the ongoing impact in terms of their increased input costs is really hitting the bottom line. That is unfortunate, and that is as a result of policy decisions taken by this government.

There are other issues that have also hurt the dairy industry in relation to some of the water aspects. Obviously with dairy they are high users of water in the plant itself but mainly in relation to irrigation. There are a number of policies that have made water security more difficult for the dairy industry generally in Victoria, and the first one we will have a look at is the north–south pipeline introduced by the Brumby government at a cost of some $750 million. When that was put in, the quid pro quo in relation to the deal done by the then Labor government was that there would be 300 gigalitres of water taken out of the north of Victoria to come down to Melbourne through the north–south pipeline.

As we know, that water did not end up coming to Melbourne because Peter Walsh, the former Minister for Water and former Minister for Agriculture and Food Security, put a stop to that and made sure the rules were tightened so that that water would remain in northern Victoria for production purposes. But it certainly was a policy of a former Labor government to take water out of northern Victoria and bring it to Melbourne. That water has to actually come from somewhere; it does not just appear. As we know, all the water has allocations — whether that is for environmental or production purposes — so that water was taken out from production purposes, and those production purposes grow the food that we not only consume but also export to the world.

The north–south pipeline was a disaster, not only because of the cost of $750 million but also because of the water that was taken away. Then we saw another harebrained scheme by this government to actually reverse the north–south pipeline. But I must say we have not heard any more about that in the last few months. Perhaps this government has decided that the less they say about that the better, because I do not think that is an exercise that will bear any fruit for anyone — and I will not mention the desal plant in terms of poor water decisions taken by Labor governments.

Going back to the motion in relation to dairy, you can look at other scenarios in relation to water that have taken water out of production. You can look at the water buybacks that were undertaken by Senator Penny Wong when she was the water minister in a federal Labor government. It was right in the middle of a millennium drought where everyone was struggling for water that Penny Wong decided that they would go into the market to buy water and take that water out of production, which meant there was less water around for irrigation, for dairy farmers or whatever sector of agriculture that people need water for. That was another mistake that was made in relation to water policy. I am thankful that federal water minister Barnaby Joyce and former state water minister Peter Walsh were able to introduce a cap in relation to water buybacks and then after that actually ban any further buybacks in the state. So that was stopped.

Also under the Brumby government we had the Northern Victoria Irrigation Renewal Project (NVIRP), which was great in theory but did not quite come together in practice. I know that when he was the water minister Peter Walsh struggled for years to try to bring it back online. There were several inquiries into it, and eventually NVIRP was brought into Goulburn-Murray Water to try to sort it out. Obviously it is still having difficulties. It is now being called the Connections Project, and current Minister for Water Lisa Neville is struggling her way through it. She has a single-minded focus to get the project finished, but I do not think she has taken into consideration the care that is required in terms of the final outcome for irrigators. We will see where that one ends up, but that is another pressure on dairy farmers as we go through in relation to their water.

Just going back to the motion, the dairy industry is very important for Victoria, and it is very important for the economy. It employs many people in those small regional communities. It creates wealth for those small regional communities in terms of the dairy farmers and the money they earn. The dairy industry is also important for the grain industry, because they rely on not only grain but fodder to feed the cattle. So the dairy industry is very important beyond just the production of milk and milk-type products. There is no doubt that Victoria is a world leader in terms of agriculture. We need to do everything possible to ensure that that continues. It is a very big employer in regional Victoria. It is also a very big producer of wealth for this state, not only domestically but internationally through exports. This side of the chamber will continue to support the dairy industry and continue to support agriculture in every way we can, because if regional Victoria is doing well — if the agriculture sector is doing well — the whole of Victoria is doing well.

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