Milked-dry: government meddling is the problem for milk industry, not the solution

The plight of Victorian dairy farmers has as much to do with the agricultural policies of successive federal governments, as with the current price of milk. While Agricultural Minister Barnaby Joyce has now announced concessional loans, it has been evident since at least 2012, when the Murray Darling Basin Plan was legislated, that these farmers faced a bleak future. Back then politicians from both the Labor and Coalition could have addressed real issues being drawn to their attention, instead they claimed these issues were too hard politically, and potentially a vote loser in South Australia.

Before May 2009, my company, Twynam Agricultural Group, was the largest private holder of irrigation rights in the Murray Darling Basin. Then Twynam sold 240,000 megalitres of water entitlement to the federal government, comprising the largest single sale of water for the environment in Australia's history. While Twynam benefited financially from water reform, by 2011 I could see that the process was not actually delivering any environmental benefit, while potentially undermining the financial viability of irrigated agriculture across the Murray Darling Basin.

It is not so many federal elections ago, that the Australian public were being encouraged, if we cared about the environment, to vote for more environmental flows for the Murray River's mouth and Lower Lakes in South Australia. Back in 2004, Mark Latham was promising the buy-back of 1,500,000 megalitres of water for the environment, and John Howard only 500,000. But by January 2007, under the Howard government's $10 billion National Plan for Water Security, it was agreed that 2,700,000 megalitres – almost double what Labor had proposed only a few years earlier – be returned as environmental flow.

I know of people who live on the shores of Lake Alexandrina, which is at the termination of the Murray Darling Basin, explain that the only place that they can get their water is upstream. They have campaigned against rice and cotton growing in the Murray Darling, and for more environmental flows. These same people now insist we buy more dairy, and Australian branded milk.

Activism against irrigated agriculture, and the political response, has significantly forced-up the price of water for all food producers in the Basin, including dairy farmers. Furthermore it is dairy farmers who are most vulnerable and the Victorian dairy industry is too big to save by people buying locally.

Victoria accounts for approximately 85 percent of Australia's dairy exports, worth around $2.3 billion in 2013-14. The export focus means that returns for most dairy farmers are linked to world dairy commodity prices and exchange rates. So, if the Federal Government really wants to help Victorian dairy farmers, it should cut red tape, and not unnecessarily add to production costs. Instead the price of temporary water, on a market increasingly controlled by governments, has increased from $30 per megalitres to almost $300 per megalitres as a direct result of the water buybacks. Reduced reliability of water supply and a corresponding extraordinary increase in the price of this key input may be the straw that finally breaks the Victorian dairy industry's back; much a consequence of government intervention, not only drought.

Victorian dairy farms are mostly family-owned, high turnover, low profit small businesses. Since the Snowy Hydro-electricity and irrigation scheme, unlike rice and cotton growers in New South Wales, dairy farmers in Victoria had access to 'High Security' water. What this meant was that, before all the 'water reforms', back when a water allocation was 'attached' to land, Victorian dairy farmers generally held a guaranteed allocation to see them through, even during periods of drought. Over the last few years, more than 20 percent of this water has been purchased by the Commonwealth Environmental Water Holder (CEWH), with the Lower Lakes and Murray Mouth now a priority destination for this water. Indeed during the last drought the banks, industry farm consultants, and especially governments, were encouraging dairy farmers to sell their valuable high security water entitlements, and make the change to buying water on the temporary water market.

The Victorian State Government removed a cap on non-primary producers trading water in 2009, and so state owned entities and the South Australian Government now buy, sell and speculate in this market to ensure maximum return for their shareholders. For example, the Melbourne Water Authority in most years trades the 75,000 megalitres of water allocated to it by the Victorian State government for the North-South Pipeline, which was closed years ago.

This temporary water was traded at $25 per megalitre in 2012, $70 per megalitre in 2013, $130 in 2014, and $220 per megalitre last year. Late last year a prospectus from The Nature Conservancy Australia was encouraging city-based wealthy Australians to invest directly in Murray-Darling Basin water entitlements and water allocations (the Project). This organization was only recently established by US-based Nature Conservancy which has US$ 5.8 billion in global net assets.

It has been explained that such environmental organizations plan to buy water for internationally recognized wetlands, with the option of selling to farmers.

During the last drought, there was not enough water to keep the terminal lakes in South Australia full of freshwater. These are recognized as internationally important wetlands under the United Nation's Ramsar treaty, but have actually been in ecological decline for more than 70 years. What these wetlands need is not more freshwater, but rather tidal inflows from the Southern Ocean. But who is going to invest in a portfolio of seawater!

Historically, the vast shallow terminal lakes were estuarine. So, even before the Snowy Hydro scheme, Lake Alexandrina never dried-up because the Southern Ocean would push in during periods of extended drought. During the Federation drought of 1895-1902, which predates the development of irrigation in the Murray Darling, the salt water extended over 100 kilometers upstream to Mannum.

Nowadays inflows from the Southern Ocean are stopped by 7.6 kilometers of barrage built by government in the 1930s. The barrages are immediately upstream of the Murray's mouth and Coorong, and join the islands at the southern end of Lake Alexandrina. These sea dykes have significantly reduced the capacity for natural scouring of the Murray's mouth by stopping the tides, and have made the lower lakes wholly dependent on freshwater from upstream.

Lake Alexandrina, once part of the Murray River's estuary, and about the size of Port Phillip Bay, is now essentially a vast carp-filled duck pond surrounded by new housing estates, golf courses and some farmland which all irrigate directly from this freshwater. This is where most of the "environmental flow", the water bought back from Victorian dairy farmers and me is being sent.

It's what the Basin plan, which is driving the water reform across Australia, mandates. This federal legislation, enacted when Malcolm Turnbull was Water Minister, gives priority to those wetlands covered by international agreements.

Indeed, it is people who live around Lake Alexandrina and who advocate that we buy Australian local dairy, that have been significant beneficiaries of the Basin plan because Lake Alexandrina has been awash with freshwater since the price of temporary water started to increase with the legislation of the Basin Plan. These South Australians vote for whoever is advocating more water for the Murray mouth, which essentially means more water for the Southern Ocean. "Better the ocean, than those greedy rice and cotton growers in New South Wales," I'm told.

It is true that voting preference in politically important South Australia may eventually put rice and cotton farmers out of business, but it's my bet that the export-dependent Victorian dairy industry will go first.

I was a rice grower and I am a cotton grower. We are not obliged to grow a crop every year. We can literally sit-on our hands when the price of water is too high. But dairy farmers, they need to milk and feed their cows every day.

Minister Joyce may have just today announced concessional loans to these dairy farmers, but it won't save them. It is unlikely that the Australian government will cause an increase in the price of milk but Minister Joyce could, however, do something about the Basin plan which is driving up input costs and increasing unreliability, which are making irrigated agricultural across the Murray Darling Basin unviable in the longer term.