Agricultural subsidies and farm income distribution: a case study of the Australian dairy industry

2017-06-21T05:46:41Z (GMT) by Carol Anne Vogt
The Australian dairy industry has been the recipient of large amounts of government assistance for many years. Despite the concern the government has shown for the welfare of dairy farmers the industry contains large numbers of producers who earn very low incomes. In particular, the manufacturing sector of the industry - comprising farmers who produce milk exclusively for manufacturing purposes (butter, cheese and processed milk products) - has many marginal producers and as a result this sector is assisted by a comprehensive set of protective measures. In this study only one of these measures is considered in detail: the annual Commonwealth Bounty on butterfat utilised in the manufacture of butter and cheese. The bounty has been in operation since 1942 and during that time has resulted in a transfer of $793 million from Australian taxpayers to farmers whose milk is used to produce butter and cheese. The dairy industry bounty has therefore been of considerable monetary benefit to the industry.

Over the years that the bounty has operated it has been used to achieve a number of policy objectives, one major objective being to assist low-income producers. The effectiveness of the bounty as an aid to poor dairy farmers has, however, been severely criticised. Critics have claimed that the bounty is a failure as a welfare measure since the larger, higher-income producers who are least in need of assistance receive most the payments and very little of the bounty goes to low-income producers. The purpose of this study is to examine the effect of the dairy industry bounty on the distribution of income among farmers in the manufacturing sector of the Australian dairy industry. In particular, do high­-income dairy farmers receive the greatest benefit from the bounty program, or is the reverse the case? Does the bounty tend to widen or to reduce the inequality in the distribution of income? These are the questions which are considered here and the answers provide an indication of the effectiveness of the bounty as a welfare measure. [...]