We have heard a lot of emotional drivel and humbug about milk in Canberra the past few weeks.
Only 3 per cent of milk consumed in Canberra comes from the single ACT dairy. The other 97 per cent comes from NSW and Victoria.
The ACT Milk Authority skites that it produces the cheapest milk in Australia, the presumption (a wrong one) being that you need a regulated market to continue to deliver such a result.
How is it that the ACT Milk Authority with only one cute little dairy in Fyshwick can deliver among the cheapest milk in Australia?
It has nothing to do with economies of scale or entrepreneurial genius on the part of the authority. No; the truth lies elsewhere. In fact, the ACT is sponging off the aberrations of the regulated NSW and Victorian market to deliver such a result. At present the ACT authority delivers milk at or under $1.15 a litre. That is a cent or two less than in NSW.
It is easy for the ACT to achieve this result. In NSW and Victoria the price at the farm gate is regulated at a minimum payment to the farmer of 55c a litre. So every litre of milk that goes into a NSW or Victorian produced carton comes from raw milk that cost 55c a litre paid to the farmer. Each farmer is granted (at a cost) a quota of milk that he fills. But NSW and Victorian dairy farmers produce more milk than the quota. This over-quota milk goes into a deregulated market in NSW and Victoria for manufactured milk products like yogurt and cheese (but not, on pain of fine, carton milk). This milk fetches about 27 cents a litre on the open (non-carton market).
However, the prohibition against putting over-quota milk into cartons does not apply in the ACT. NSW and Victorian over-quota milk can find its way into cartons in the ACT and there is nothing Victorian and NSW authorities can do about it.
So when the ACT Milk Authority puts out to tender its requirement for milk to put into cartons of fresh milk for the people of the ACT, there is plenty of cheap over-quota milk about to fill the tender. The price of the two tenderers (one each from NSW and Victoria) who supply 97 per cent of the milk received by the ACT Milk Authority is about 44 per litre — a pretty poor result given the general market price of 27c. The ACT Milk Authority processes this milk and gets it into cartons on the supermarket shelf for about $1.15 a litre. Compare this to the NSW and Victorian processors, who have to pay the full regulated 55c a litre at the farm gate (11c more than the ACT) and still manage to get it on the supermarket shelves for within a cent or two of $1.15 a litre.
The ACT Milk Authority, exploiting a loophole in the regulated markets of NSW and Victoria to the tune of 11c a litre, can only manage to get milk on the shelves at one or two cents cheaper than its NSW and Victorian counterparts. It is a pitiful performance. The authority should be abolished.
If, of course, NSW and Victoria deregulated their farmgate price, the ACT Milk Authority would be hopelessly uncompetitive. And this is likely to happen in the next couple of years.
At present, Victorian and NSW consumers are propping up the agrarian socialists in the bush by paying too much at the farm gate, and the ACT is riding on the regulated cow’s udder.
As it happens, these contracts go for another year, so the ACT price (despite the inefficiency) is protected for sometime yet. In the meantime, the ACT authority can generously dish out $700,000 a year of milk buyers’ money to ACT rugby teams (whereas if it came straight out of the ACT Budget there would be outrage from other more pressing dependants on government), and the employees and managers of ACT Milk can live a comfortable lifestyle.
But don’t listen to any nonsense that cheap milk and generous rugby sponsorship comes from the diligence and efficiency of the ACT Milk Authority.
When the NSW and Victorian regulatory regimes inevitably end we should ponder whether an ACT authority and rugby subsidy is worth it. At present they are adding about 9c a litre to milk that is not being added in NSW and Victoria. In those states the 9c is going to the farmer. In none of the three states does the consumer get any benefit from regulation.
The latest kerfuffle comes because NSW and the ACT have deregulated to allow NSW milk into the ACT. NSW has not deregulated the farmgate price.
If it does, there is no guarantee that the reduction will be passed on to the consumer. In both regulated and deregulated markets the middlemen seem to do well. But let’s not pretend regulation produces a good result. If that were the case, why don’t we have a Confectionery Authority or Vegetable Authority. In these days of refrigerated trucks and good transport any idea that milk supply might be endangered and therefore should be monopolised and regulated is nonsense. To the contrary, any regulation should ensure open competitive markets. Indeed the Competition Commission should have a hard look at why only one brand is available at Woollies.
As long as someone is ensuring the milk is safe and healthy, no and the market competitive, no other regulation is needed.