Dairy levy bid divides farmers

Dairy Australia has banked on farmers supporting an increased levy for the next five years in order to implement its strategic plan for 2012-2016.

But there is divided opinion about whether WA dairy producers can afford another cost impost.

In February-March next year, dairy producers will vote on the level of the Dairy Service Levy to be paid to Dairy Australia.

The current levy is 0.315 cents/litre and the options in the 2012 levy poll, which were developed by an industry advisory group, are to abolish it altogether or increase it by 10 or 15 per cent.

An industry consultation group including producers, processors, members of the Australian Dairy Farmers and the Australian Dairy Products Federation has recommended farmers support a 10 per cent increase in the levy. And Dairy Australia's strategic plan for 2012-2016 is based on an increased levy.

But a group of disgruntled dairy producers in Victoria is pushing for a 'status quo' option to be included in the levy poll and it is anticipated this issue will be discussed at Dairy Australia's annual meeting to be held in Victoria tomorrow.

WAFarmers dairy section president Peter Evans said his organisation would not be recommending to members which levy option to support, but he personally endorsed an increase in the levy rate.

"There has been no increase in the Dairy Australia levy for 15 years and I think WA's dairy farmers can absorb a 10 per cent higher levy," he said.

"The levy currently works out to be less than 1 per cent of the milk cheque, which is a small investment to make into the future of the industry."

But Waroona dairy farmer Vernon Pitter, whose family has been in the dairy industry since 1920, said WA milk producers were experiencing a trough in trading conditions and any increase in the Dairy Australia levy would have a big impact on their bottom lines.

He has called for Dairy Australia to continue to tighten its belt for another year or two before considering any levy increase.

Mr Pitter said WA dairy producers were, on average, receiving 41 to 42c/litre for milk when the break-even survival point was about 45c/litre.

"Our margins are very tight and another 10 per cent increase in the levy at this point in time would make a dramatic difference to our business," he said.

"Rising fixed overhead costs and other costs of production are already killing us and, coupled with discounting of milk by retailers, things are very difficult for dairy farmers in WA.

"So I wouldn't want to see any increase in the Dairy Australia levy unless there is a dramatic increase in farm gate prices."

Mr Pitter said he was happy with Dairy Australia's performance in investing in research and development for the industry, but he would like to see the organisation intervene to stop big retailers discounting milk.

He said this issue should be discussed at the annual meeting tomorrow.

"Dairy Australia is our peak body and could be more active in giving producers a voice on this issue," he said.

But Mr Evans said it was not Dairy Australia's role to be involved in political issues or battles with retailers or processors.

He said Dairy Australia's primary function was to invest about $58 million collected annually from the Dairy Service Levy and government contributions into initiatives to make the dairy sector competitive, innovative and sustainable.

Mr Evans welcomed the Dairy Australia strategic plan for 2012-16, which was released earlier this year, saying it was very thorough in its investment platforms for research, development and extension to boost on-farm productivity; protecting the value of the industry; coordinating climate change responses; and growing capability and skills.

He said a focus on projects to lift productivity was particularly important for WA farmers who were grappling with the aftermath of the worst season in 40 years in 2010, reduced production levels and price discounting from retailers.

"We have seen milk production drop by 7 to 8 per cent each month from July to September this year, which is a big concern given that the seasonal conditions this year are a lot better than last year," he said.

In its strategic plan for 2012-16, Dairy Australia has estimated total Australian milk production will increase by only up to 2 per cent per year to the year 2016 and levy revenue will rise from an estimated $29.5 million in 2011-12 to $35.1 million in 2015-16 if there is an increase in the levy of 10 to 15 per cent.

Total Dairy Australia expenditure - with Government contributions - is forecast to increase from $49.6 million to $60.2 million in the same period and Dairy Australia plans to run its reserves down from $31.2 million in July 2011 to $8.7 million by June 2016.

Mr Evans said he welcomed the group's spending projections outlined in the strategic plan and was not concerned that Dairy Australia planned to cut its reserve levels because there was continual monitoring of the reserves needed to cater for extreme events, in the worst case scenario, a zero per cent levy being voted in that would require winding-up the organisation.

He said a recent report had shown that for every dollar invested by Australia's dairy industry and government for the past 30 years, dairy farmers had received a benefit of at least $3.30.

The Dairy Australia-Victorian Department of Primary Industries report found $2 billion had been spent on pre-farm gate R&D and extension projects for Australia's dairy farmers between 1980 and 2010.

It showed a direct connection between increased milk production per hectare and investment in R&D into pasture production and use, feed supplements and genetic improvement. Milk yield increased 192 per cent from an estimated 2878 litres/ha in 1980 to 8419 litres/ha in 2010.

Dairy Australia managing director Ian Halliday said the evaluation highlighted that dairy industry production would have declined by about 23 per cent due to rising costs and disused technology without industry-driven improvements in pasture management and supplementary feeding systems over the past three decades.