Federal Government Decision on Deregulation Package - The Implications
On 28th September, Federal Cabinet endorsed the proposal put by the ADIC to assist farmers via a financial entitlement in the transition to a deregulated industry. It is now up to the state governments to agree to implement deregulation nation wide. This seems most likely to eventuate, resulting in the federal government legislating an 11c per litre levy on all liquid milk sales to fund the entitlement.Dairy farmers will be entitled to a payment of 46.23c for every litre of city milk produced in the 1998/99 season and 8.96c per litre for manufacture milk. For a typical Western Victorian cow producing 5,000 litres, this will amount to approximately $600 per cow or $120,000 for a 200 cow farm.
The payment will be assessable income paid quarterly over eight years. It is planned that an option to take a lump sum payment on 1st July 2000 will be available through private financial institutions. Such an annuity payment would represent a figure typical of a principle/interest loan paid bover eight years. For $120,000 this would be approximately $90,000 up front at today's interest rates.
Farmers will look upon this entitlement in a number of ways. For some, deregulation is an unwelcome event. They would prefer to have a continuation of a regulated industry where the domestic price for liquid and manufactured products is controlled. Others will see the entitlement as compensation for lost income which is assumed once a deregulated market is in place. There will also be a group of farmers who see this as a major windfall. These farmers are prepared for supply to a deregulated market and are accepting of the inevitability of deregulation in the global agricultural commodities market where seventy percent of Victorian dairy production is destined.
Whatever the underlying attitude to deregulation may be, all Victorian dairy farmers have now been offered significant financial assistance. The choice to take it as a lump sum versus 32 payments over eight years will depend on their financial situation. For some who may need cash to continue trading with creditors it may be necessary to take up some or all of that option. It will be pertinent to discuss individual situations with financial advisers.
Click here to view the rest of the 1999 October newsletter.