A SENATE committee will investigate pricing and competition in the Australian dairy industry, with particular attention being given to the varying prices being paid to dairy farmers.
With milk prices dropping below the cost of production in the past month, the Senate's economics committee will inquire into the economic effect on the dairy industry from recently announced reductions in prices to be paid to producers by milk processors.
It will also determine the impact of the concentration of ownership of milk processing facilities on milk market conditions as well as the of the consolidation of the ownership of the market or drinking milk sector with the manufacturing milk sector on milk market conditions in the dairy industry.
Concentration of supermarket supply contracts on milk market conditions will also come under the spotlight.
Milk prices offered by National Foods and Fonterra have fallen more than 10 cents below the cost of production in the past month which has been blamed on a fall in world dairy prices.
This is despite new figures from the US Department of Agriculture revealing a continuing move upwards in global dairy prices.
In South Australia farmers have threatened to pour milk down the drain in protest at the domestic contract-price crash while dairy farmers in Tasmania have set up a fighting fund to challenge what they say are unfair prices.
There are fears for the future of the iconic Riverina Fresh milk brand produced out of Wagga Wagga in southern NSW, where farmers are threatening to leave the industry rather than put up with Fonterra's offer of 28 cents a litre.
Tasmanian Liberal Senator, Richard Colbeck, said dairy farmers are under enormous financial pressure due to the "massive and unsustainable cuts in milk prices".
"Dairy farmers, as price takers, are at the mercy of a small number of large milk processing companies," Senator Colbeck said.
"Many farmers are now being forced to take prices which don’t make up for the cost of producing the milk.
"This inquiry will look at these ongoing price and market issues in the dairy sector and look to make recommendations to help farmers avoid exposure to unfair markets or unfair contracts."
But in an open letter to Tasmanian dairy farmers earlier this month, National Foods rejected claims it was abusing market power and pointed to low global commodity prices for the drop in contract prices.
The company's chief executive officer Ashley Waugh said when the global commodity price of milk increased dramatically two years ago, the dairy farmers insisted prices changed to reflect those higher movements.
"We did this despite the fact that the domestic market did not move upwards to near the same extent," Mr Waugh said.
"Of course the commodity price has now slumped and the whole industry is affected.
"The side of the equation often overlooked in the public debate is that we, as a viable business, have to produce and sell our product at a competitive price.
"Therefore, while we pay a premium, we cannot afford to offer farmers a price way out of proportion with our competitors who supply product in the same market that we do."
In the latest Rabobank Agribusiness Review however global dairy prices reportedly moved upwards again in August, varying from a three per cent increase for cheddar to 28 per cent for whole milk powder (WMP).
Demand, however, is modest and the report says a stockpile is increasing in some northern hemisphere countries.
Submissions to the Senate inquiry are due by October 22 and can be emailed to economics.sen@aph.gov.au.
