Deregulation refers to the removal of both state and federal legislation specific to the dairy industry. For the states this meant the discontinuation of regulated sourcing and pricing of drinking milk. Federally, support of manufacturing milk prices through the Domestic Market Support scheme ceased.
In early 1999, the industry’s peak policy body, the Australian Dairy Industry Council (ADIC), approached the federal government with a plan for an orderly, national approach to the deregulation of the drinking milk sector in conjunction with the end of manufacturing milk price support. On 28 September 1999, the federal government announced it would implement the Dairy Structural Adjustment Program (DSAP).
The DSAP involves the imposition of a (retail) Dairy Adjustment Levy of 11 cents per litre on consumers of products marketed as dairy beverages. The levy funds quarterly DSAP payments (over eight years) to Australian dairy farmers, to assist them to make the necessary adjustments to a deregulated environment, with minimal social and economic disruption.
As the last steps were taken in the deregulation process, all states repealed legislation governing sourcing and pricing of drinking milk, and the state milk authorities, which administered these controls, were wound up from 1 July 2000.
The impact of deregulation at the farm level varied across the different states of Australia - very much dependant on how important drinking milk (with its regulated higher farmgate price) was to the individual farm enterprise in relation to their total milk production. A number of farmers took advantage of the exit payments offered under the DSAP scheme to leave the industry.
The overall impact was a decrease in the number of farms, which was simply the continuation of an industry trend that has been apparent for over three decades.
A World Competitive Industry
Australian dairy farmers now operate in a completely deregulated industry environment, where international prices are the major factor in determining the price received by farmers for their milk. At an average of approximately US 42c per litre, Australian dairy farmers receive a low price by world standards and therefore have to run very efficient production systems.
Nevertheless, today around 40 percent of Australian milk production is exported - primarily as manufactured products - at international market prices for a value of $A2.8 billion in 20011/12.