DAIRY NEWS AUSTRALIA MARCH 2014
OPINION // 11 THE FRESHAGENDA EXPORT INDEX FRESHAGENDA’S EXPORT index hit a record 246.1 in the first week of February, eclipsing the previous peak in September 2007 (243.0). It has since relaxed a little but remains at giddy heights, close to 240. Commodity prices started moving higher in December 2012, and have increased 40% since then, while the weakening dollar has made its contribution moving the index 70% higher. Comparing the previous 2007 peak to the current index, skim milk powder and cheddar prices are similar, whole milk powder prices are up $350/t while butter is significantly stronger – by $1,200/t. Back in 2007 the Australian dollar was 5 cents lower than the US currency. The index is a lead indicator of average export returns - based on current spot prices, currency movements and the Australian dairy
Farmers cop wrong whack JAN DAVIS
THERE’S BEEN a lot of talk of late
industry’s export mix. It was set at 100 in January 2000. The index measures current market sentiment, but in reality it takes 3 to 6 months for prices to translate into actual returns, depending on the timing of contract negotiations. Given Australian production has fallen this year, and we are heading into a seasonally low production period, there is limited product available for spot trade at these prices. However, the index paints a positive picture for 2014/15 farmgate price. Freshagenda’s modelling suggests these export returns would
translate to around $7.80/kgMS if they could be locked in for the 2014/15 year. The extent to which this positive index converts into actual farmgate prices over this coming year will be determined by several large variables: ■■ EU and US response to better production margins ■■
Whether high prices burn off global demand for products
■■
How quickly international prices convert into domestic wholesale returns
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How far the $A falls against the US and other currencies.
about the need for governments to stop propping up unviable businesses and industries. The case in point has been the car industry. The taxpayers kept pouring money into something that is terminally broken - $12 billion over the last 10 years and more than $45,000 for each job every year in the case of General Motors. At the same time as we have been pouring money into the car industry, we have seen thousands of Australians losing their jobs in food manufacturing, with knock-on effects into the farming community. Somehow, though, until recently that hasn’t generated the same national outcry as the demise of Australianborn Holdens, Ford and Toyotas. That has turned around a little over recent weeks, with the situation that has arisen in Shepparton with the announcement of the closure of the SPC-Ardmona cannery. The immediate reaction then was to look for a government bailout, even though the federal government made it clear the national purse was empty. Interestingly, in this debate, the economic rationalists were quick
out of the blocks to once again take a swipe at Australian family farmers. They have been drawing analogies between government subsidies for foreign-owned manufacturers in the car and food sectors and support payments to farmers during times of drought. “Let them stand on their own two feet,” they say. “If they can’t compete in a global market, they need to toughen up or get out,” they say. “No public funds should go to support unviable and unsustainable farm businesses,” they say. Let just unpack that a little – and run it through a fact checker. Australian farmers receive next to nothing in subsidy payments. In fact, with New Zealand, our farmers get the lowest level of assistance in the world. According to the OECD, only 3% of an Australian farmer’s income is attributable to government assistance. The three major components of that subsidy are: matching dollars for industry funded R&D; assistance after natural disasters, and the diesel fuel rebate. The OECD average is 20%, capped by Norway at 60%. The equivalent figure in Australia for cars and parts is 8.5%; for textile clothing and footwear manufacturing 10.6%; for wood and paper products
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manufacturing 4.7%; and for metal products manufacturing 4.3%. Let’s make that a bit clearer. The OECD says that the average Australian farmer receives US$1,360 pa in government assistance. American farmers receive US$30,170 pa; US$106,975 in the EU; and US$165,591 in China. The average hourly rate for a farmhand in Australia is US$16.88/ hour for a 38 hour week. The equivalent NZ farm worker is on US$11.18/hour for a 40 hour week; in America, US$7.25; in the UK, US$10.02; and in China, US$1.19. There are no tariffs or quotas on most food products into Australia. The equivalent tariff rates are 5% into the US; 18% into the EU; and 20% into China. In the much-vaunted free trade agreement currently under negotiation with South Korea, the 304% tariff on potatoes is to be immediately removed. Tariffs of 36% on cheese and 89% on butter will be eliminated over the next 13 to 20 years. Australian dairy exporters will also benefit from growing duty free quotas for cheese, butter and infant formula. Our farmers are on any measure among the most efficient in the world. • Jan Davis is the CEO of the Tasmanian Farmers and Graziers Association.
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