MARKET FAILURE IS DEFINED AS “ILLOGICAL ACTIONS TAKING PLACE FOR SEEMINGLY LOGICAL REASONS.”
Currently there are farmers going out of business while the state is NOT SELF SUFFICIENT IN DIARY PRODUCTS. The agricultural resources exist in Western Australia for complete self sufficiency in dairy and possibly a great export industry, however a series of events which span almost 100 years has shaped an industry that can not compete. A draft report can be read here.
A summary of this report is:-
In 2000 the dairy industry in Western Australia deregulated. At that time the following processing assets were in place.
Cheese manufacture at Capel and Brunswick. Cheese whey processing at Capel. (These assets were old at the time with the Capel cheese plant being bought second hand from Tasmania in 1970 and the Brunswick assets not much younger)
Milk powder production at Capel (originally installed in Korumburra, Victoria in 1953 and relocated to WA some years later) in Boyanup. (Purchased new in 1966)
Butter manufacture and buttermilk drying at Boyanup.
Cheese packaging and butter packaging at Spearwood.
Ice cream manufacture at Balcatta.
UHT manufacture at Harvey.
UHT manufacture at Bentley.
Yoghurt production at Balcatta and Serpentine.
Artisan cheese manufacture at several locations.
There were three liquid milk manufacturing plants. These were at Balcatta, Bentley, Harvey.
In 2016 the three liquid milk manufacturing plants remain, however, the UHT plant at Bentley and the ice cream at Balcatta have been removed. The cheese manufacture plant at Brunswick is being closed.
All operations at Boyanup and Capel have ceased and the buildings are now being removed. The cheese and butter packaging plants at Spearwood have been removed however there are some small cheese packaging plants still in Western Australia, however, they do not have the capacity to package all of Western Australia is cheese.
These processing plants were all removed due to lack of commercial viability.
The result is the import of the following products:
- Cheese, approximately 35,000 tonnes.
- Butter,approximately 10,000 tons.
- Ice cream approximately 45,000,000 L.
There are other products imported such as yoghurt,approximately 60% of consumption and UHT milk, approximately 50% of consumption.
As the cheese butter and ice cream, manufacture facilities were removed the excess milk found the market as liquid in Singapore, Taiwan and Malaysia.
These markets were good as they required minimal processing in Western Australia. The Western Australian processors developed the appropriate technology for bulk transport in 20-tonne containers.
However, There were risks, these included temperature rise during transport rendering the product unusable, transport delay risks, currency exchange risks, import regulations risks , price risks and competitor/substitution risks from Thailand and UHT products.
The suppliers of bulk milk to Southeast Asia were always under price competition resulting in lower margins, the competition was from Western Australia, Victoria and Thailand.