business case for dairy industry peak body

Business Case 13 June 2012

Mike Logan Consultant CEO, Dairy Connect NSW, 66 Devonshire St. Surry Hills. 2010. Ph: 0418657111 email: [email protected] www.dairyconnectnsw.com.au Business Case prepared by:

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http://www.dairyconnectnsw.com.au/�

Business Case – Dairy Connect NSW REPORT

Contents

Executive Summary ................................................................................................... 5

1 Introduction ...................................................................................................... 8 1.1 Business Case Purpose ........................................................................................... 8 1.2 Background Leading to the Establishment of Dairy Connect NSW ....................... 8 1.3 Relevant Stakeholders ........................................................................................... 9 1.4 Vision and Mission Statements for Dairy Connect NSW ..................................... 10

2 Dairy Connect NSW Terms of Reference ............................................................. 11 2.1 Organisation Objectives and Operating Principles .............................................. 11 2.2 Compliance with Competition Law ...................................................................... 12 2.3 Legal Structure and Status ................................................................................... 12

3 Policy and Programs for Dairy Connect NSW 2012 to 2014 ................................... 12 3.1 Policy Development ............................................................................................. 13 3.2 Apolitical Advocacy at State and National Levels ................................................ 14 3.3 Contribution to Research Direction ..................................................................... 15 3.4 Delivery of Extension and Education Services ..................................................... 15 3.5 Market Intelligence and Market Promotion ........................................................ 16 3.6 Summary of Dairy Connect NSW Program KPIs 2012 to 2014 ............................ 17

4 Dairy Connect NSW Relationships ...................................................................... 18 4.1 Relationship with the State Government ............................................................ 18 4.2 Relationship with the NSW Farmers’ Association ............................................... 18 4.3 Relationship with Vendors ................................................................................... 19 4.4 Relationship with Processors and Manufacturers ............................................... 19 4.5 Engagement with the Retail Sector – Small and Large ........................................ 20 4.6 Code of Conduct for Dispute Resolution ............................................................. 20 4.7 Interaction with the Relevant Collectives and Associations ................................ 20 4.8 Relationship with Dairy NSW and Other RDPs .................................................... 21 4.9 National Relationships including ADF and DA ..................................................... 21 4.10 Summary of Dairy Connect NSW Relationship KPIs 2012 to 2014 ...................... 22

5 Organisations Dairy Connect NSW Might Replace and Resources Furbished ........... 24 5.1 Graham Park Dairy Trust ...................................................................................... 24 5.2 Milk Marketing (NSW) Pty Ltd ............................................................................. 24 5.3 Dairy Industry Conference (and repeal of the Dairy Industry Act 2000) ............. 25 5.4 Summary of Restructuring Required and Resources Available ........................... 25

6 Governance Arrangements ................................................................................ 26 6.1 Organisational Structure, Responsibilities and Reporting ................................... 26 6.2 Company Constitution for Dairy Connect NSW ................................................... 28 6.3 Operations and Auditing ...................................................................................... 28 6.4 Delineation of Representation and Service Delivery Functions .......................... 28 6.5 Offices and Administration .................................................................................. 29 6.6 Strategic Planning, Workshops and Conference ................................................. 29


6.7 Governance and Administration KPIs .................................................................. 29

7 Financial Considerations and Membership Value Proposition ............................... 30 7.1 Establishment and Annual Operating Cost Estimates ......................................... 30 7.2 Revenue Forecast for Dairy Connect NSW .......................................................... 31 7.3 Net Financial Position .......................................................................................... 33

Business Case References ......................................................................................... 35

Appendix 1: Steering Committee and Reference Group Membership ........................... 36

Appendix 2: Map of existing NSW dairy industry stakeholders ..................................... 36

Appendix 3: Dairy Connect NSW Draft Constitution .................................................... 36

Appendix 4: Competition Policy Statement ................................................................ 37 Abbreviations ADF Australian Dairy Farmers AFGC Australian Food and Grocery Council AMVA Amalgamated Milk Vendors Association Inc. AOP Annual Operating Plan CEO Chief Executive Officer DA Dairy Australia DAFF Australian Government Department of Agriculture, Fisheries and Forestry DCL Dairy Connect NSW Limited (the proposed peak body) DICon NSW Dairy Industry Conference DPI NSW Department of Primary Industries DRF Dairy Research Foundation KPI Key Performance Indicator MDPA Milk and Dairy Products Association MOU Memorandum of Understanding NFF National Farmers Federation QDO Queensland Dairyfarmers’ Organisation RAS Royal Agricultural Society RDE&E Research, Development, Extension and Education TWU Transport Workers Union UK United Kingdom


Acknowledgements AgEconPlus wishes to thank the project Steering Committee and NSW DPI for their assistance during business case preparation, including but not limited to:

• Adrian Drury, Chair Dairy Connect NSW Steering Committee (dairy farmer) • Bob Paton, Amalgamated Milk Vendors Association (distributors) • Ian Hollindale, Pauls Parmalat Food Products Pty Ltd (milk processor) • Bill Inglis, Dairy Research Foundation, Sydney University (dairy farmer) • George Davey, RAS of NSW and Milk Marketing (NSW) Pty Ltd • Kristian Holz, Director Ministerial Liaison Office NSW Dept of Trade & Investment • Adrian Peake, Queensland Dairyfarmers Organisation • Ian Halliday, Managing Director Dairy Australia • Peter Stahle, Executive Director, Australian Dairy Products Federation

DISCLAIMER All description, figures, analyses, forecasts and other details have been prepared in good faith from information furnished to the study team by other parties. This data is believed to be correct at the date of preparation of this report. However, it should be noted that predictions, forecasts and calculations are subject to assumptions which may or may not turn out to be correct and the study team expressly disclaim all and any liability to any persons in reliance, in whole or in part, on the report in total or any part of its contents. Michael Clarke AgEconPlus Pty Ltd Ph: 02 9817 5888


Executive Summary

This document is a business case for the establishment of a new peak industry body for the NSW dairy industry. The peak body will represent:

• Dairy farmers, • Milk vendors, • Milk processors and dairy manufacturers, • Suppliers, researchers, extension officers and educators.

The new ‘through chain’ peak body will be known as Dairy Connect NSW and will address the loss of industry structures and representation capacity post deregulated in 2000. Purpose: What is it to do? The purpose of Dairy Connect NSW is to directly represent the whole value chain of dairy in NSW. The expectation is that by connecting the value chain the industry can be effectively represented, set the agenda and address its needs. Why: Since deregulation the industry has attempted to represent itself as separate sectors. Consequently all sectors have been ignored by governments and the electorate. The issues the industry needs to solve are not from within, they are the external issues of public policy, competition policy, research, development and extension. The industry will be more successful if it does this as a single voice. Objectives: What will it achieve?

• Grow the industry so that new and export markets for fresh milk are developed. o That the old Milk Marketing role is renewed. o So that demand exceeds supply. o Concentrate on the higher value markets. o Focussing the higher quality products. o Become export oriented.

• Renew the confidence in the industry. o We are still the second largest dairy state in Australia. o Dairy still adds $1 billion at farm gate to the NSW economy. o More dairy products are consumed in NSW than any other State in

Australia.

• Find where the industry can create efficiencies that benefit the whole value chain

• Deliver the best dairy representation in Australia. o Leadership development across every sector. o Provide the place where the industry comes together.

• The industry will work collectively to manage the power of the retailers. o By ensuring Competition Policy is meaningfully applied.

• Improve productivity and milk quality through efficient methods of research and education.


Structure: How will it work? The purpose of the Dairy Connect NSW Board is to ensure policy, strategy and equity across the membership. The Board will have six members and an independent Chairman. The six members will be made up of the representative organisations of the:

1. Processors through the ADPF and perhaps the ASCA, 2. The milk vendors through the AMVA, 3. The dairy farmers through the farmers group of Dairy Connect NSW.

Funding: How will Dairy Connect NSW be funded? Operations: Dairy Connect NSW will deliver services by pooling industry resources currently housed in the Graham Park Dairy Trust; Milk Marketing (NSW) Pty Ltd; and the Dairy Industry Conference. It will hold these assets in trust for the NSW dairy industry and will augment income earned from this capital with appropriate annual membership fees. Membership fees for this specialist NSW dairy peak industry body will be approximately equivalent to current NSW Farmers’ Association membership fees for dairy farmers. Vendors will pay a single levy for their association to join Dairy Connect NSW. Processors and manufacturers will be asked to pay size based membership fees. In time, Dairy Connect NSW will also generate revenue from management of research and extension projects and one off project grants. Establishment costs: One off establishment costs are estimated at $300,000 and annual operating costs for the mature organisation in 2016 are estimated at $1 million. Best current estimates of annual revenue cover annual operating costs and generate a small financial surplus. These estimates will continue to be refined as Dairy Connect NSW matures. Operations of the organisation: How will all the groups work together? The member organisations of Dairy Connect NSW will determine their own direction. They will be more effective together under the Dairy Connect NSW structure. The member organisations will drive the overall strategic direction and policies of the organisation, but are free to advocate individually. The members will use Dairy Connect NSW to have internal industry communication. The member organisations will select their own representatives for the Board positions. Those representatives will then select an independent Chairman. Australian Dairy Farmers: Dairy Connect NSW will take over the membership of the ADF from the NSW Farmers Association. Dairy Connect NSW recognises the importance of the National body.


NSW Farmers Association: Dairy Connect NSW will continue to work with the NSW Farmers Association on the ‘agriculture wide’ issues that affect dairy. These could be land use planning, environment, water, animal health and so on. Dairy Connect NSW will take over the ‘dairy specific’ representation roles. The Australian Milk Vendors Association: The AMVA will continue to operate as its own independent and autonomous entity that will become a member of Dairy Connect NSW. The Australian Dairy Products Federation: Processors will decide through ADPF whether the ADPF become a member or whether individual processors join on their own. Associate members: There may be a category for associate members such as small manufacturers, dairy industry suppliers such as feed merchants, agents, researchers, extension officers and educators. Dairy Connect NSW is a sound proposal whose implementation will advance the interests of all NSW dairy industry stakeholders. Further detail is provided in the body of the business case.


Introduction

1.1 Business Case Purpose This document is a business case to support the establishment of a unified body to represent the NSW dairy industry. The unified body has been established as a not for profit company limited by guarantee – Dairy Connect Limited (DCL) and will operate under the trading name ‘Dairy Connect NSW’. This business case was prepared for the NSW Dairy Industry Conference (DICon) by consultants AgEconPlus in February and March 2012. 1.2 Background Leading to the Establishment of Dairy Connect NSW On 11 August 2011, DICon briefed the NSW Minister for Primary Industries and the Parliamentary Secretary for Natural Resources about the NSW Dairy industry’s desire to create a new peak representative body. DICon resolved, in principle, that a new representative body would unite the present number and fractious nature of existing bodies, interests and assets to realise:

• An enhanced strategic outlook for the dairy industry as a whole in NSW.

• A singular and clear focus on the interests of the dairy industry in NSW with removal of any potential for duplication of effort and gaps in present complex arrangements.

• Greater credibility to maximise efficiencies and leverage opportunities for the dairy industry through the consolidation of programs, capacities and capabilities.

• Empowerment of industry through greater industry stake holding and stewardship of industry matters.

The new representative body would have at its heart the best interests of the commodity rather than those of any particular sector. The new body would be the single point of contact and communication with members, media and decision-makers for all matters dairy in NSW. Prior to dairy industry deregulation in July 2000 a single point of contact was provided by the NSW Dairy Corporation. With deregulation a situation has emerged where there is no peak body to represent dairy in NSW and the industry finds itself ‘on the back foot’ when important issues that affect its future emerge. For example, national institutions tend to focus on the export of manufactured milk products while the NSW industry services domestic milk markets. Recently, domestic milk markets have been challenged by changes in large retailer pricing policy. Consolidation around a single entity offers efficiencies over the large number of existing state based bodies and the initiative is consistent with farmer representation achieved by the Queensland Dairyfarmers Organisation (QDO) and Dairy UK. Dairy UK operates ‘through chain’ and includes processors, vendors and dairy farmers working together to promote the dairy category.


A Steering Committee with representatives from DICon, Milk Marketing (NSW) Pty Ltd, milk processors, vendors and the Dairy Research Foundation (DRF) was formed to drive this single body initiative. To ensure Dairy Connect NSW has broad based industry ownership and understanding, the Steering Committee established an industry Reference Group to oversee and validate the Steering Committee’s work. Membership of both groups is detailed in Appendix 1. 1.3 Relevant Stakeholders Dairy Connect NSW will represent the interests of dairy farmers, milk vendors and processors.

Dairy Farmers • There are approximately 830 registered dairy farmers in NSW. • Some NSW dairy farmers are presently represented by the NSW Farmers’

Association – membership estimated by NSW Farmers’ at somewhere between 20% and 40% of the NSW total (i.e. around 250 farmers).

• Dairy farmers from the Murray region of NSW and the subtropical Northern Rivers are closely aligned with the Victorian and Queensland industries but are likely to realise additional benefits from joining Dairy Connect NSW.

• Milk supply cooperatives like Dairy Farmers Milk Supply Cooperative and NORCO will also benefit from Dairy Connect NSW membership.

Vendors • There are approximately 315 dairy vendors in NSW. • Dairy vendors are represented by the Amalgamated Milk Vendors Association Inc.

(AMVA) and include milk vendors and dairy distributors. The AMVA’s membership covers 80% of the vendors in NSW.

Processors and Manufacturers • The major processors operating in NSW include Parmalat (Pauls), Lion (part of the

Lion Nathan National Foods aggregation) and Fonterra (Norco and Murrumbidgee Dairy Products). The Murray Goulburn Cooperative supplies fresh milk to the ACT.

• Milk processors are represented by the NSW Milk and Dairy Products Association (MDPA). The association has been less active post NSW dairy industry deregulation.

• Manufacturers include major operations such as Bega Cheese and a plethora of niche manufacturers of yoghurts, ice creams and other dairy products. It is intended that Dairy Connect NSW will also represent large and small manufacturing businesses.

• Processors and manufacturers like other industry sectors will need to be presented with a convincing benefits proposition prior to a funding commitment to Dairy Connect NSW.

These three groups are the ‘internal’ Dairy Connect NSW stakeholders. Dairy Connect NSW will have a constructive working relationship with a wide range of industry (e.g. retailers) and non-industry (e.g. NSW Government, Dairy Australia) ‘external’ stakeholders. A map of existing NSW dairy industry stakeholder relationships is provided in Appendix 2.


1.4 Vision and Mission Statements for Dairy Connect NSW Vision and mission statements to drive Dairy Connect NSW 2012 to 2014 have been crafted by the internal stakeholders: Vision statement: A unified body that provides leadership, communication and

representation for the NSW dairy industry. Mission statement: Dairy Connect NSW will deliver policy, advocacy, research, extension,

education, market development and promotion services to all sectors of the NSW dairy industry.


2 Dairy Connect NSW Terms of Reference

2.1 Organisation Objectives and Operating Principles The internal stakeholders, through the project Steering Committee, have resolved a range of objectives and operational principles to provide guidance and stewardship for Dairy Connect NSW. Objectives:

1. Protection and enhancement of the sustainability of the NSW dairy industry and promotion of growth in supply and consumption.

2. Active promotion of the NSW dairy industry and its products to local and export markets.

3. Promote the sale and use of dairy products, materials and other products manufactured from milk.

4. Educate the community in the use of milk and dairy products.

5. Service the needs of all dairy industry sectors.

6. Promote strategic and operational cooperation between all dairy industry stakeholders.

7. Provide services to the dairy industry.

8. Approach government and government authorities and instrumentalities at federal, state and local levels to promote the introduction of or amendment of legislation relating to the growth, processing, manufacturing and marketing of milk in NSW.

9. Provide industry development and support through participation and active facilitation of programs including research, training, extension and education and consistent with the National RDE&E Framework.

10. To act as trustee for industry funds. Operating principles:

1. Not for profit.

2. A single industry trade organisation representing the interests of the entire dairy industry supply chain.

3. Dairy Connect NSW to act as the ‘voice of the dairy industry’ in NSW.

4. Provision of targeted, value add business services to members based on strategic, planned investments constantly reviewed for value for money.

5. Promotion of the NSW dairy industry’s interests in the political sphere as a highly effective, apolitical lobbyist.

6. Facilitate collaboration and partnership with other bodies to improve the efficiency, welfare and interests of the NSW dairy industry.

7. Support or run a range of generic promotions for dairy products which promotes the interests of a responsible innovative dairy industry and to undertake research on subjects in relation to the dairy industry.


8. Establish a broad internal system of representation to ensure regions and sectors are represented and engaged and inform of the organisation’s operations.

9. Assets to be held always on trust for the NSW dairy industry i.e. if the company is wound up any assets must be transferred to a replacement body whose objects are consistent with those that directly benefits the NSW dairy industry.

10. Promotes mechanisms for dispute resolution between sectors of the industry in a professional and constructive way and in a manner which preserves the inherent value of the dairy commodity.

11. Facilitate delivery of the National RDE&E Strategy. Dairy Connect NSW is not concerned with commercial issues such as raw milk pricing. 2.2 Compliance with Competition Law The internal Dairy Connect NSW stakeholders perceive there is value in the industry coming together, in a mature way, to promote the interests of dairy as a commodity. The internal stakeholders are well aware of their competition law responsibilities and will operate at all times in a manner consistent with Australian Competition and Consumer Commission guidelines (http://www.accc.gov.au/). An industry statement regarding compliance with the Competition and Consumer Act 2010 is included as Appendix 4. 2.3 Legal Structure and Status Dairy Connect NSW was incorporated as a not for profit company limited by guarantee in December 2011. The legal structure employed is the same as used by equivalent functional industry bodies including the NSW Farmers’ Association (NSW Farmers’) and the Queensland Dairyfarmers Organisation (QDO). Dairy Connect NSW does not have any shareholders in which any financial interest may vest and the organisation may hold and acquire property consistent with principles settled by industry and ratified by DICon e.g. assets are to be held always on trust for the NSW dairy industry. For administration purposes the interim registered office holders are Adrian Drury (DICon), Bill Inglis (DRF) and Bob Paton (AMVA). To these three, George Davey (Milk Marketing (NSW) Pty Ltd) is added to make up the interim Dairy Connect NSW directors. The trading name ‘Dairy Connect NSW’ is to be registered for Dairy Connect NSW Limited. A Commonwealth Bank Account has been opened in the company’s name and Dairy Connect NSW is registered for the GST.

3 Policy and Programs for Dairy Connect NSW 2012 to 2014

Dairy Connect NSW programs 2012 to 2014 were established in a well-attended strategic planning workshop 9 December 2011. Programs will be refined in a second industry workshop to be held prior to 30 June 2012. The outcome of this second workshop will be the ‘raw material’ for Dairy Connect NSW’s first strategic plan and the Dairy Connect

http://www.accc.gov.au/�


NSW Chief Executive Officer (CEO) and Senior Policy Officer should be in place prior to the workshop. 3.1 Policy Development Policy development has been identified by NSW dairy farmers as the highest priority for Dairy Connect. Key policy issues requiring analysis and a considered industry position include (workshop 9 December 2011):

• Right to farm • Animal welfare • Food security and NSW dairy industry’s role in servicing Australia’s largest market • Additional food safety and traceability costs • Increasing cost of regulatory compliance • Government disinvestment in industry services • Water allocation and ongoing access to irrigation water • Land use planning, mine expansion and peri-urban development • Carbon tax including incorporating of additional costs into low margin businesses • Retail market power; small retailer, vendor and farmer profitability.

NSW Farmers’ Association priorities will also be important to Dairy Connect NSW (NSW Farmers; Association Policy Statement 2010-11):

• Animal health • Animal welfare • Competitiveness of agriculture • Dairy Australia • Dairy farms • Dairy section • Drought and natural disaster • Fair trading • Food safety • Genetically modified organisms • Industry bodies • Land use planning • Livestock marketing • Peak industry body • Road transport • Weed control.

While the primary focus of Dairy Connect NSW’s policy development efforts will be on state (and local government) issues and legislation, a number of these priorities have a national dimension and policy positions will need to be communicated to national organisations (e.g. Australian Dairy Farmers, National Farmers’ Federation (NFF), Australia Food and Grocery Council (AFGC) and Australian Government Department of Agriculture, Fisheries and Forestry (DAFF). In some instances it will be appropriate to develop joint policy positions with the likes of the NSW Farmers’ Association – sharing resources and costs while some issues may even be better ‘subcontracted’ by Dairy Connect NSW to NSW Farmers’ or a similar body.


Other organisations, such as Dairy Australia, may be able to assist Dairy Connect NSW with raw data, facts and figures. While strategic alliances with organisations like the NSW Irrigators Council will ensure the development of consistent, broadly based and effective policy positions. Responsibility: The Dairy Connect NSW Chief Executive Officer (CEO) will assume overall responsibility for policy analysis, joint research with the NSW Farmers’ Association (or similar organisation) and the development of industry positions. The two highest policy priorities will be analysed and provided to the Dairy Connect NSW Board by the Dairy Connect NSW Policy Officer for consideration and ratification each year. These NSW dairy industry policies will then inform apolitical advocacy. KPIs: Two highest priority policy position papers prepared each year 2012 to 2014. 3.2 Apolitical Advocacy at State and National Levels Apolitical advocacy is defined in this business case as working in the political sphere, with both government and industry, to achieve NSW dairy industry policy, research, development, extension and education (RDE&E) and market intelligence / promotion outcomes. Apolitical advocacy will include regular meetings to explain policy positions and industry needs to the NSW Government including the NSW Minister for Primary Industries, the NSW Department of Trade and Investment, the NSW Department of Primary Industries (DPI) and other portfolios relevant to dairy such as the Office of Environment and Heritage and the Parliamentary Secretary for Natural Resources. National ‘markets’ for apolitical advocacy will include the national dairy industry representative body, Australian Dairy Farmers, to achieve better recognition of NSW dairy priorities in national forums, NFF, AFGC, DAFF, the Australian Minister for Agriculture and the Australian Parliament (e.g. House of Representatives Rural Affairs Committee). Apolitical advocacy may also be required to inform Dairy Australia resource allocation decisions with respect to NSW RDE&E, market intelligence and promotion priorities. Industry ‘markets’ for advocacy will include retailers (large and small), unions and a range of current and potential funding bodies. Responsibility: Advocacy will be the responsibility of the Dairy Connect NSW CEO and Independent Chair. The presence of the Independent Chair at key meetings and forums will give gravitas to NSW dairy policy positions. KPIs: Government takes serious note of Dairy Connect NSW and its views from mid-2012. Dairy Connect NSW is recognised as the benchmark model for industry organisations, is the envy of other states and is seen as ‘punching above its weight’ in policy circles by 2014.


3.3 Contribution to Research Direction A long term strategy for the holistic provision of research, development, extension and education services for the NSW dairy industry is presently under development. The Dairy Connect NSW Steering Committee has resolved that the strategy and Dairy Connect NSW are inextricably linked. Dairy Connect NSW will be well placed to support strategy formation and delivery. Dairy Connect NSW December 2011 Workshop participants identified new dairy products that focus on health and development of the export sector in NSW as R&D priorities. A comprehensive list of priorities is included in Cowan 2011. Work has started on the NSW RDE&E strategy and the NSW dairy industry and the NSW Government will continue to refine it. When complete the strategy will establish key objectives for NSW dairy RDE&E plus education for the ten years to 2021. The strategy will be consistent with Dairy Australia strategic directions (see Dairy Moving Forward – the National RDE&E Strategy, September 2009). Dairy Connect NSW will need to ensure that the strategy is relevant to industry and that scarce NSW DPI resources remain committed to its delivery. NSW DPI is under considerable budgetary pressure and effective advocacy by Dairy Connect NSW will ensure that the dairy industry retains its share of agency research resources. Dairy Connect NSW will work to ensure that in the long term, dairy research in NSW is relevant to producers, milk vendors and processors. A relevant research program will be valued and partially funded by all parts of the supply chain. Research project management will, in the future, be an important source of revenue for Dairy Connect NSW. Responsibility: The Dairy Connect NSW CEO will drive industry’s inputs into the strategy from mid-2012. The CEO’s goal will be to ensure the research strategy delivers research relevant to all parts of the NSW dairy industry and consistent with the National RDE&E Strategy. KPIs: Long term research strategy for dairy in NSW is finalised by mid-2013; there is an overall increase in the funding of NSW research priorities relative to other jurisdictions; NSW DPI maintain dairy research capacity; processors contribute to strategy funding by mid-2014; and fees from research project management are an important source of revenue for Dairy Connect NSW by mid-2014. 3.4 Delivery of Extension and Education Services Consistent with the long term RDE&E strategy currently being developed by the NSW dairy industry and the NSW Government it is proposed that an Extension Services Program co-managed by industry and the NSW DPI be developed (Janet Moxey, Letter to the Minister 16 January 2012). The co-managed Extension Services Program may involve NSW DPI extension staff being placed in Dairy Connect NSW and, in time, being employed by that organisation. Under this arrangement NSW DPI would fund extension staff wages and Dairy Australia would fund the projects that they deliver. Dairy Australia has given in-principle support to this

Formatted: Not Highlight


proposal. Dairy Connect NSW needs to ensure it has forecast sufficient revenue to fund extension staff costs if NSW DPI decides to discontinue salary payments. Dairy Connect NSW offers the following value proposition to NSW DPI for delivery of extension services (Dairy Connect Steering Committee meeting 16 March 2012):

• Principles of equity and fairness – a broad spectrum of engagement in extension that covers all NSW dairy producers and not just Dairy Connect NSW members.

• Customer Service Obligations – Dairy Connect NSW will cover off extension issues that do not have a direct benefit to the dairy industry but may have a broader public good (e.g. environmental and social outcomes management).

The Dairy Connect NSW Steering Committee has identified ‘people development’ as a high priority for the NSW industry. The industry is relatively small and currently loosing critical mass. Education and leadership skills are very important to the NSW industry and will be actively funded by Dairy Connect NSW. Responsibility: Dairy Connect NSW CEO overseen by the Dairy Connect NSW Board. KPIs: The placement of NSW DPI extension staff to Dairy Connect NSW results in a net improvement in delivery of extension services to the dairy industry in NSW by mid-2013 (measured by surveying dairy farmers). Dairy Connect NSW funds its first Australian Rural Leadership program (or similar) scholar by mid-2014. 3.5 Market Intelligence and Market Promotion Market intelligence currently available to the NSW dairy industry through Dairy Australia is perceived by NSW stakeholders to be of limited value. Dairy Australia’s market research focusses on developments in export markets for manufactured dairy products and the NSW industry is concerned with developments in domestic milk and milk product sales. Dairy Connect NSW will work with Dairy Australia to make best use of the six FTE DA employ in this role to address this perceived gap and ensure up to date and relevant market intelligence is made available to NSW farmers, vendors and processors. Market outlook material currently received by Milk Marketing (NSW) Pty Ltd could become the foundation for more appropriate outlook and market development intelligence for the dairy industry in NSW. Market promotion was identified as a priority by participants at the Dairy Connect NSW December 2011 Workshop. Dairy Connect NSW would channel some of its own resources into effective domestic promotion activities and lobby Dairy Australia to allocate additional funds to the building of domestic sales. A case will be made to vendors and processors to contribute to fresh milk promotion. Responsibility: Dairy Connect NSW Policy Officer. KPIs: More appropriate and valuable market intelligence received by NSW farmers, vendors and processors in late 2012. Funds invested in domestic milk promotion by late 2013. Processor support for fresh milk promotion to be in place by 2014. Post 2014 it will be appropriate to establish and monitor systems to measure ongoing additional milk sales as a result of Dairy Connect NSW driven market promotion.


3.6 Summary of Dairy Connect NSW Program KPIs 2012 to 2014 KPIs for Dairy Connect NSW Programs 2012 to 2014 and responsibility for their delivery are summarised in Table 3.1. Table 3.1 Summary of KPIs for Dairy Connect NSW Programs 2012 to 2014 Initiative Responsibility

For Delivery Year 1 Feb 2012 to June 2012

Year 2 ending 30 June 2013


3.1 Policy development

DCL Policy Officer

Two policy position papers prepared, signed off by the Board and ready for apolitical advocacy.

Two more policy position papers prepared.

Two more policy position papers prepared.

3.2 Apolitical advocacy

CEO, DCL Chair

Government takes serious note of DCL by mid-2012.

DCL has a seat at the table in key forums. A key policy decision in line with a DCL position paper is made.

DCL is the advocacy benchmark and seen as ‘punching above its weight’ by industry and Government.

3.3 Contribution to research direction

DCL Policy Officer

Long term Research, Development, Extension and Education (RDE&E) strategy consistent with DCL policy finalised.

There is an overall increase in the funding of NSW research priorities relative to other jurisdictions. NSW DPI do not withdraw research capacity.

Processors contribute to RDE&E strategy funding by mid-2014. Fees from project management are an important revenue source for Dairy Connect NSW.

3.4 Delivery of extension and education services

CEO Long term RDE&E strategy consistent with DCL policy finalised.

The handover of NSW DPI extension staff to Dairy NSW results in a net improvement in delivery of extension services.

Dairy Connect NSW funds its first Australian Rural Leadership program (or similar) scholar.

3.5 Market intelligence and market promotion

DCL Policy Officer

More appropriate and valuable market intelligence received by NSW farmers, vendors and processors.

Funds invested in domestic marketing.

Processor support for fresh milk promotion.

An ambitious but achievable program is proposed for Dairy Connect NSW. Delivery of this program will be dependent on effective Dairy Connect NSW relationships and recruitment of a skilled and motivated CEO and Senior Policy Officer. The cost of Dairy Connect NSW program delivery will be salary costs and relatively minor operating expenses (e.g. office space and travel).


4 Dairy Connect NSW Relationships

This section of the business case describes the nature of key Dairy Connect NSW external stakeholder relationships, actions required 2012 to 2014 and consequential priority. 4.1 Relationship with the State Government Dairy Connect NSW will maintain a relationship with the NSW Government through NSW DPI service provision to the dairy industry and through advocacy for relevant policy provisions. KPIs relevant to these activities are documented elsewhere in the business case.

Responsibility: Dairy Connect NSW CEO.

Priority: High, to be delivered in 2012. KPI: Working relationships established with NSW Government and other state bodies by end of 2012. 4.2 Relationship with the NSW Farmers’ Association NSW Farmers’ and Dairy Connect NSW will have a strong and collaborative working relationship. Both organisations will share a common membership base. For example a NSW dairy farmer may decide to be both a Dairy Connect member and a NSW Farmers’ associate member. Both organisations may choose to work jointly on policy positions and share staff resources. It is proposed that Dairy Connect NSW develop a formal memorandum of understanding (MOU) with NSW Farmers’ to allow DCL to contribute to and shape NSW policy in relation to broader ‘whole of agriculture’ issues including, but not limited to, water allocation; irrigation policy; policy on coal seam gas; right to farm; land use planning; government disinvestment in agriculture; and implementation of the carbon tax. Dairy Connect NSW will also seek out opportunities to share resources with NSW Farmers’ and deliver efficiencies for both organisations. For example the QDO pays AgForce Queensland for access to a media officer and a similar arrangement may be appropriate in NSW. It may be appropriate for NSW Farmers’ to deliver industrial relations services on behalf of Dairy Connect NSW and have its members attend NSW Farmers’ conference and Executive Council. Actions required by Dairy Connect NSW include:

• Maintenance of the current ‘in good faith’ dialogue with NSW Farmers’.

• Complete a comparison cost of service provision by NSW Farmers’ with commercial and other association alternatives (e.g. NSW Irrigators Council, QDO, consultants, etc.). A fee of $20,000 base rate plus a fee for service plus media officer costs may mean a total payment to NSW Farmers’, or similar, of around $60,000 per annum and this estimate is included in the initial business case budget.

• Negotiate a MOU with NSW Farmers’ or an alternative service provider. Responsibility: Dairy Connect NSW CEO and Independent Chair.


Priority: High, to be delivered in 2012. KPI: MOU in place for auxiliary policy services and resource sharing in 2012. Monitoring the performance of the MOU to ensure it is delivering value to dairy farmers, vendors and processors in 2013 and 2014. 4.3 Relationship with Vendors NSW milk and dairy vendors are fully engaged with the development of Dairy Connect NSW. Dairy Connect NSW provides opportunity for AMVA to add critical mass to its industry representation activities and grow the market for some of the services it proposes to offer (e.g. cost effective insurance and vehicle tyres). Vendors will be represented on the Dairy Connect NSW Board through a Board Committee based on the AMVA (see Chapter 6 Governance Arrangements). Responsibility: Dairy Connect NSW CEO and Independent Chair. Priority: High, to be delivered in 2012. KPI: Amalgamated Milk Vendors Association represented on the Dairy Connect NSW Board through a relevant Board Committee in 2012. 4.4 Relationship with Processors and Manufacturers To realise its vision, Dairy Connect must fully engage with NSW milk processors and dairy manufacturers. At the current time processors have provided in principle support for Dairy Connect NSW and are sending representatives to relevant meetings. Major dairy manufacturers such as Bega Cheese also support the Dairy Connect NSW vision. To build on this in principle support Dairy Connect NSW must offer a clear value proposition to processors and manufacturers. This value proposition will be based around:

• Establishing systems (codes of conduct) aimed at speedy resolution of price disputes with raw milk suppliers.

• Opportunity to participate in Dairy Connect NSW programs including policy, advocacy, RDE&E and market intelligence/promotion.

• A united front in negotiations with retailers.

• Representation on the Dairy Connect NSW Board through a Board Committee based on the NSW Milk and Dairy Products Association (MDPA) or an alternative structure of their choosing.

Repeated articulation and refinement of this value proposition by the Dairy Connect NSW CEO and Independent Chair along with development of codes of conduct is a high priority for Dairy Connect NSW. There is also scope for the CEO and Chair to seek out both large and small dairy manufacturers and encourage their participation in Dairy Connect NSW. Responsibility: Dairy Connect NSW CEO and Independent Chair. Priority: High and solid progress already made (May 2012). Formatted: Not Highlight


KPI: Major NSW processors financially supporting Dairy Connect NSW programs. 4.5 Engagement with the Retail Sector – Small and Large Dairy Connect NSW will need to establish effective working relationships with both small and large milk retailers. Smaller retailers are affected by many of the changes in the milk market post deregulation that affect farmers and vendors (e.g. reduced milk margins, increased supermarket chain market power) and are therefore natural allies for Dairy Connect NSW. It will be important for Dairy Connect NSW to reach out to this group and prepare and delivery common advocacy messages. The large supermarket chains are the most important customers for Dairy Connect NSW’s members. It will be critical to establish a meaningful and regular dialogue with the large retailers. Responsibility: Dairy Connect NSW CEO. Priority: Medium, to be delivered in 2013. KPI: Dairy Connect NSW engaged with both small and large retailers in a regular program of discussions by mid-2013. 4.6 Code of Conduct for Dispute Resolution The December 2011 Dairy Connect NSW stakeholders workshop identified the need to create a ‘chivalrous’ set of rules in which supply chain disputes can be aired and resolved in a safe environment as a major ‘value add’ that Dairy Connect NSW will deliver. Having a set of rules and a forum in which disputes can be resolved away from the public eye will prevent disagreements within the supply chain tarnishing the image of milk in NSW. Responsibility: Dairy Connect NSW Policy Officer. Priority: Medium, to be delivered in 2013. KPI: Documented code of conduct drafted and agreed in 2013. Application of the code of conduct to relevant disputes in 2013 and 2014. 4.7 Interaction with the Relevant Collectives and Associations Amongst its many relationships Dairy Connect NSW will forge working partnerships with collectives and associations relevant to the dairy industry in order to understand their concerns and protect industry priorities. Transport is a major cost item for the dairy industry in NSW (more so than in Victoria) and a productive relationship with the Transport Workers Union (TWU) will be particularly important. Activities required by Dairy Connect NSW include:

• Identify key collectives and associations affecting NSW Dairy industry profitability

• Establish a dialogue with collective and association officials


• Prepare strategic plans to address potential points of conflict. Responsibility: Dairy Connect NSW Policy Officer. Priority: Medium, to be delivered in 2013. KPI: Key collectives and associations identified; dialogue with officials established; and strategic plans prepared by 2014. 4.8 Relationship with Dairy NSW and Other RDPs Operating since 1996, Dairy NSW develops strategic direction for New South Wales dairy research, development and extension programs. Dairy NSW is one of eight dairy farmer regional development programs (RDPs) funded by Dairy Australia and the national dairy service levy. Other RDPs relevant to Dairy Connect NSW are Subtropical Dairy and Murray Dairy. Dairy NSW’s aim is to drive region specific innovation in research and extension. Dairy NSW has a strategic plan and a Board that consists of farmers and the NSW DPI (http://www.dairynsw.com.au/). Dairy NSW is presently designing a long term research, development, extension and education (RDE&E) strategy for dairy in this state. A draft of the long term strategy was under review by the NSW Minister for Primary Industries in February 2012. Dairy NSW is currently preparing its strategic plan and it is intended that Dairy Connect NSW attend strategic planning meetings. Dairy NSW will not be replaced by Dairy Connect NSW, rather it will report to the Dairy Connect NSW Board through a Board Committee in the same way proposed for other internal stakeholders e.g. AMVA and MDPA (see Chapter 6 Governance Arrangements). Responsibility: Dairy Connect NSW CEO and Independent Chair. Priority: High, to be delivered in 2012. KPI: Negotiate new RDE&E outcome statements and reporting requirements with Dairy NSW by the end of 2012. Outcome statements to reflect Dairy Connect NSWs input into the long term RDE&E strategy. 4.9 National Relationships including ADF and DA Dairy Connect NSW will need to forge national relationships with both the government and non-government sector. National relationships will include membership of the Australian Dairy Farmers (ADF) – the national peak dairy body and membership currently costs $55,000 pa and a budget of $60,000 pa has been included in the business case. Dairy Australia (DA) has provided provisional support for Dairy Connect NSW with a number of provisos. These include the need for clear separation between RDE&E and advocacy; demonstration that new arrangements enhance RDE&E; demonstration of a

http://www.dairynsw.com.au/�


secure and sustainable funding base is in place for Dairy Connect NSW; assurance that the new arrangement will not result in cost shifting from the public sector to industry; demonstration that the new structure is consistent with Cowan 2011 and the national RDE&E framework; and that the differences between the subtropical northern NSW industry and the southern NSW system are recognised (letter from Ian Halliday, Managing Director Dairy Australia 8 December 2011). Responsibility: Dairy Connect NSW CEO. Priority: High, to be delivered in 2012. KPI: Working relationships established with all relevant national bodies and DA’s concerns addressed by end of 2012. 4.10 Summary of Dairy Connect NSW Relationship KPIs 2012 to 2014 KPIs for Dairy Connect NSW Relationships 2012 to 2014 are summarised in Table 4.1. The cost of Dairy Connect NSW relationship establishment and management will be borne through salary costs, relatively minor operating expenses (e.g. office space and travel) and membership fees – NSW Farmers (or similar) and the Australian Dairy Farmers.


Table 4.1 Summary of KPIs for Dairy Connect NSW Relationships 2012 to 2014 Initiative Responsibility

For Delivery Year 1 Feb 2012 to June 2012



4.1 NSW Farmers CEO, DCL Chair MOU with NSW Farmers (or a similar body) for provision of cross cutting policy services and resource sharing.

Monitor MOU performance and renegotiate to ensure value for dairy farmers, vendors and processors.

Monitor MOU performance and renegotiate to ensure value for dairy farmers, vendors and processors.

4.2 Vendors CEO, DCL Chair AMVA represented on the Dairy Connect NSW Board through a relevant Board Committee.

Milk vendors see value in membership of Dairy Connect NSW.

Milk vendors see value in membership of Dairy Connect NSW.

4.3 Processors CEO, DCL Chair

NSW processors financially supporting Dairy Connect NSW programs.

4.4 Retail sector - small and large

CEO

Dairy Connect NSW engaged with both small and large retailers in a regular program of discussions.

Dairy Connect NSW engaged with both small and large retailers in a regular program of discussions.

4.5 Code of conduct for dispute resolution

DCL Policy Officer

Documented code of conduct drafted and agreed. Application of code to disputes.

Application of code to disputes.

4.6 Interaction with relevant collectives and associations

DCL Policy Officer

Key unions identified, dialogue with officials established and strategic plans prepared.

4.7 Dairy NSW CEO, DCL Chair Negotiate new RDE&E outcome statements and reporting requirements with Dairy NSW.

Dairy NSW reports progress with strategy implementation to the Dairy Connect NSW Board.

Dairy NSW reports progress with strategy implementation to the Dairy Connect NSW Board.

4.8 NSW relationships

CEO, DCL Chair Relationships established with all relevant NSW bodies.

4.9 National relationships

CEO Relationships established with all relevant national bodies and DA’s concerns addressed.


5 Organisations Dairy Connect NSW Might Replace and Resources Furbished

Chapter 5 addresses organisations that might be subsumed by Dairy Connect NSW along with the resources they might make available to the new industry body. 5.1 Graham Park Dairy Trust The Graham Park Dairy Trust was established to provide financial support to the dairy farming industry in NSW through a range of means. For example in 2008 it contributed to the cost of NSW dairy farmers participating in a UK study tour. The present sole trustee of the Trust is the NSW Farmers’ Association Board. It is proposed that Dairy Connect NSW take on the role of trustee as it will have a direct nexus with the exclusive interests and rights of the stipulated beneficiaries i.e. NSW dairy farmers. A poll of NSW dairy farmers is required to formalise transfer of trusteeship from NSW Farmers to Dairy Connect NSW. This action is supported by the Dairy Committee of NSW Farmers’ Association subject to endorsement of the broader principles and considerations of the Dairy Connect NSW Steering Committee by DICon and the Minister for Primary Industries. Upon endorsement the Dairy Committee of NSW Farmers’ Association proposes to immediately address the Graham Park Dairy Trust. Dairy Connect NSW will then become the trustee with access to Graham Park Dairy Trust funds for purposes that advance dairy in NSW. The Trust holds approximately $1.3 million at 3 April 2012 with annual income of around $58,500 (at an assumed nominal interest rate of 4.5% which is the ruling Waratah Bond rate). Responsibility: Dairy Connect NSW Steering Committee. Priority: High, to be delivered in 2012. KPI: Poll held and trusteeship transferred to Dairy Connect NSW. 5.2 Milk Marketing (NSW) Pty Ltd Milk Marketing (NSW) Pty Ltd was a controlled entity of the NSW Food Authority before being transferred, as a controlled entity, to the NSW DPI in April 2011. The Company’s funds are applied to milk marketing including participation in the International Dairy Federation, responding to industry emergencies and for the general purposes of facilitating information exchange, managing emerging issues, leadership development, funding of awards and promoting the interests of the NSW dairy industry. In 2011 Milk Marketing (NSW) Pty Ltd hosted roundtable industry meetings to discuss the Coles milk price discounting issue and sought advice from the UK on how similar discounting had been managed.


It is proposed that the assets and liabilities of Milk Marketing (NSW) Pty Ltd be transferred to Dairy Connect NSW in recognition of the legacy relationship that exists between the NSW dairy industry and Milk Marketing (NSW) Pty Ltd’s original and contemporary purposes. Milk Marketing (NSW) Pty Ltd has capital assets totalling approximately $0.5 million with annual estimated income of around $22,500. Responsibility: Dairy Connect NSW Steering Committee and NSW DPI. Priority: High, to be delivered in 2012. KPI: Assets transferred from Milk Marketing (NSW) Pty Ltd to Dairy Connect NSW by mid-2012. 5.3 Dairy Industry Conference (and repeal of the Dairy Industry Act 2000) The role of the NSW Dairy Industry Conference (DICon) is to discuss, clarify and implement common desirable policies to better manage the NSW dairy industry. DICon includes representatives from dairy farmers, processors, vendors and the retailers association. DICon provides a forum for industry members to develop policy; operates under the Dairy Industry Act 2000 and the Dairy Industry Conference Regulation 2010; provides a conduit between industry and the NSW Government; can conduct relevant inquiries; and provides advice the NSW Minister for Primary Industries. Through the process of establishing a new peak industry body the Dairy Connect NSW Steering Committee recommends that the functions of DICon be divested to Dairy Connect NSW and that its assets be divested accordingly. As a consequence there remains no principal purpose for the Dairy Industry Act 2000 to be retained and it is therefore recommended that DICon supports the repeal of the Act. DICon has capital assets totalling approximately $0.7 million with annual income of around $31,500. Responsibility: DICon, Dairy Connect NSW Steering Committee and NSW DPI. Priority: High, to be delivered in 2012. KPI: DICon functions and assets are divested to Dairy Connect NSW and the Dairy Industry Act 2000 is repealed by mid-2012. 5.4 Summary of Restructuring Required and Resources Available KPIs for organisational restructuring to facilitate the establishment of Dairy Connect NSW are summarised in Table 5.1. All of these KPIs should be achieved in 2012.


Table 5.1 Summary of Organisational Restructuring 2012 Initiative Responsibility Year 1 Feb 2012 to June 2012

5.1 Graham Park Trust Dairy Connect NSW Steering Committee

Poll held and trusteeship transferred to Dairy Connect NSW

5.2 Milk Marketing (NSW) Pty Ltd Dairy Connect NSW Steering Committee and NSW DPI

Assets transferred from Milk Marketing (NSW) Pty Ltd to Dairy Connect NSW

5.3 Dairy Conference (DICon) DICon, Dairy Connect NSW Steering Committee and NSW DPI

DICon functions and assets are divested to Dairy Connect NSW

Resources made available to Dairy Connect NSW post restructuring are summarised in Table 5.2. Table 5.2 Summary of Resources Available to Dairy Connect NSW 2012 to 2014 Organisation Capital Estimated Annual Income

(4.5% net after costs) Graham Park Dairy Trust 1,300,000 58,500 Milk Marketing (NSW) Pty Ltd 500,000 22,500 Dairy Industry Conference 700,000 31,500

Total $2,500,000 $112,500 NB: Capital and income estimates to be confirmed

6 Governance Arrangements

Governance arrangements are informed by the Dairy Connect NSW Steering Committee and review of the QDO model. Value for money and industry accountability drive proposed organisational structures. 6.1 Organisational Structure, Responsibilities and Reporting The Dairy Connect NSW Board will meet four times per year and be responsible for delivery of the Dairy Connect NSW vision and oversee peak body governance. The Dairy Connect NSW Board will consist of two representatives from each of the farming, vendor and processor sectors plus and independent chair - a Board with a maximum of seven directors. In time Dairy Connect NSW may wish to consider either a smaller Board or movement to a skills based Board. A switch to a skills based Board would allow, for example representation from the retail sector and the addition of marketing expertise. Board members will receive annual payments capped at $10,000 per Board member to assist with preparation and meeting costs (a total cost of $70,000 per annum). George Davey, Milk Marketing (NSW) Pty Ltd has been suggested as an appropriate Independent Chair. The Dairy Connect NSW management team will consist of a Chef Executive Officer (salary $180,000) and a Senior Policy Officer (salary $100,000) who will share responsibility for design, delivery and reporting of Dairy Connect NSW’s five key programs 2012 to 2014 and relationship development (see Chapter 3 and 4 KPIs). A part time, one day per week Communications Officer ($20,000) will ensure the Dairy Connect NSW message is received and understood by both internal and external stakeholders.


Media, delivery of cross industry policy / advocacy functions and participation in the development of wider NSW rural affairs policy positions will be contracted through a performance based MOU with the NSW Farmers’ Association (or similar) at an approximate cost of $60,000 per annum. Dairy Connect NSW will also join Australian Dairy Farmers to ensure its say in national issues – an annual cost of $60,000. Reporting to Dairy Connect NSW, the NSW dairy industry’s peak body will be four Board Committees which will incur total annual meeting costs of $120,000 per annum and represent:

1. Milk vendors – closely aligned with the AMVA

2. Dairy NSW - with responsibility for RDE&E and including NSW DPI

3. Dairy farmers - with links to the NSW Farmers’ Association and responsible for producer advocacy.

4. Processors and manufacturers – closely aligned to the NSW Milk and Dairy Products Association

The farm level representative structure required for reporting to the Dairy Connect NSW Board Committee will be the same as currently used to report to the NSW Farmers’ Association Dairy Committee and the same by-laws will be used. Figure 6.1 Dairy Connect NSW Organisational Structure Management Team

• Chief Executive Officer • Senior Policy Officer • Communications Officer

It is intended that each Board Committee will be semi-autonomous and build its capacity in line with its sector’s expectations.

DAIRY CONNECT

NSW BOARD (Strategy and Governance)

Board Committee –

Vendors (AMVA)

Board Committee –

RDE&E (Dairy NSW)

Board Committee –

Dairy Farmers

Board Committee – Processors (MDPA)



6.2 Company Constitution for Dairy Connect NSW A draft constitution for Dairy Connect NSW is attached as Appendix 3. 6.3 Operations and Auditing Day to day operating principles will be described in an operations manual, a governance manual, a fraud control plan, a risk management plan, an intellectual property (IP) management plan, a communications plan, a three year strategic plan and an annual operating plan (AOP). The AOP will give effect to Dairy Connect NSW program’s (the strategic plan) the outline of which is described in this business case. Funding and performance agreements will be negotiated and contracts established between Dairy Connect NSW and dairy farmers, vendors and processors. Staff position descriptions and day to day operating plans will be prepared by the CEO and approved by the Dairy Connect NSW Board. A registered auditor will complete an independent audit of Dairy Connect NSW’s financial position six monthly for the organisation’s first two years and annually thereafter. There will be an independent review of performance – peak body efficiency and effectiveness at the end of 2014. 6.4 Delineation of Representation and Service Delivery Functions Dairy Connect NSW is fully aware of its responsibilities in relation to maintaining a clear and effective ‘firewall’ between its industry representation (eg apolitical advocacy) and service delivery (eg extension) functions (Figure 6.2). To this end Dairy Connect NSW will:

• Maintain separate and clear financial records of income and expenditure related to each of representation and service delivery.

• Staff, with the exception of the CEO, will be either employed in representation or service delivery roles.


Figure 6.2 Delineation of Activities and their Funding

6.5 Offices and Administration To ensure industry value and effective integration it is proposed that Dairy Connect NSW share Sydney office space with the Amalgamated Milk Vendors Association (AMVA). AMVA are centrally located in Surrey Hills within walking distance of Central Railway Station. During the set up phase of Dairy Connect NSW it will also be possible to share AMVA administration support and office systems. AMVA has offered office and administration on a cost recovery basis through to 2014 and an annual budget cost of $15,000 ($300 per week) has been allowed in this business case. Location within the Royal Agricultural Society facilities at Homebush would provide an alternative for Dairy Connect NSW. 6.6 Strategic Planning, Workshops and Conference To ensure the industry ‘owns’ its new organisation and the new organisation remains connected to its stakeholders an annual allowance of $50,000 is made for strategic planning and an industry symposia. 6.7 Governance and Administration KPIs KPIs for governance and administration are summarised in Table 6.1.

Representation • Policy development • Apolitical advocacy

Funding Source: Membership Fees

Service Delivery • Research direction • Extension & education • Market intelligence • Promotion

Funding Source: National Levy with Commonwealth matching


Table 6.1 Summary of Governance and Administration KPIs 2012 to 2014 Initiative Responsibility Year 1

Feb 2012 to June 2012



6.1 Organisational structure, responsibilities and reporting

Dairy Connect NSW Steering Committee

Internal stakeholder commitment to DCL structure.

6.2 Company constitution

Dairy Connect NSW Steering Committee

Finalise constitution.

6.3 Operations and auditing

CEO Preparation of operational manuals and strategic plans.

Six monthly audit of Dairy Connect NSW financial position.

Six monthly financial audit. Complete efficiency and effectiveness review.

6.5 Delineation of representation and service delivery

CEO Company accounts and staff position descriptions show delineation

6.5 Offices and administration

CEO Secure an agreement on office space - AMVA or RAS

6.6 Strategic planning workshop and symposia

CEO Annual industry symposia

Annual industry symposia

Annual industry symposia. Workshop to develop new strategic plan.

7 Financial Considerations and Membership Value Proposition

7.1 Establishment and Annual Operating Cost Estimates Establishment Costs Dairy Connect NSW start-up costs will include:

• Legal fees, poll, business case preparation and interim CEO

• Communication strategy development and delivery including website

• Establishment of a database of potential members

• Negotiation with Dairy Connect NSW stakeholders to secure participation

• Staff recruitment, systems design and branding Establishment costs of $300,000 with equal contributions from DICon, Milk Marketing (NSW) Pty Ltd and the Graham Park Trust, has been allowed. Annual Operating Costs Estimated annual operating costs for the period 2012 to 2014 are summarised in Table 7.1.


Table 7.1 Dairy Connect NSW Annual Operating Cost Cost Item 2012 2013 2014 2015 2016 Board

0 0 70,000 70,000 70,000 (7 Directors @ $10,000 each sitting fees and travel) Staff

120,000 200,000 300,000 300,000 300,000 (CEO $180k, Senior Policy Officer $100k, Communications Officer – part time 20k) Board committees

80,000 80,000 100,000 100,000 120,000 (4 committees incurring costs of $30k each) NSW Farmers’ (or similar) service agreement

20,000 30,000 50,000 60,000 60,000 (includes media officer part time) Australian Dairy Farmers membership

60,000 60,000 60,000 60,000 60,000 (actual cost $55k in 2012) Audit and review of efficiency / effectiveness

20,000 20,000 20,000 20,000 25,000 (annual allowance includes set aside for 3-year review) Office space and administration support

15,000 15,000 15,000 15,000 15,000 (allowance of $300 per week that includes admin support) Strategic planning and symposia

10,000 20,000 30,000 50,000 50,000 (to ensure internal stakeholder ownership of Dairy Connect NSW) Programs – core activities central to the operation of Dairy Connect NSW (e.g. DCL promotion and travel)

10,000 100,000 150,000 200,000 200,000

Programs – management of RDE&E projects and other grant projects (e.g. Caring for Our Country)

0 0 0 0 0

Contingency @ 10% (e.g. funding for Chair of Dairy Science for $10,000 per annum) 30,000 30,000 40,000 100,000 100,000

Total cost 365,000 555,000 835,000 975,000 1,000,000 By 2016 Dairy Connect NSW will need to generate $1,000,000 to remain solvent and deliver effective services to the NSW dairy industry. 7.2 Revenue Forecast for Dairy Connect NSW The following revenue estimates were prepared with the Dairy Connect NSW Steering Committee. Income from existing resources:

• Existing resources include the Graham Park Dairy Trust; Milk Marketing (NSW) Pty Ltd reserves; and Dairy Industry Conference funds.



• It is assumed that all existing resources are transferred to Dairy Connect NSW and Dairy Connect NSW wish to maintain the nominal value of existing assets i.e. existing resources earn a nominal interest rate, after direct costs, of 4.5% and no allowance is made for maintaining the real value of assets i.e. purchasing power after inflation (as per Table 5.2).

Dairy farmer membership fees:

• There are 830 registered dairy farmers in NSW and approximately 250 are financial members of the NSW Farmers’ Association.

• Dairy Connect NSW will benefit from being single commodity focussed and being supported by a concerted communication program. Nevertheless farmers might adopt a ‘wait and see’ approach to membership. Furthermore, in the first year of operation, potential members will have already paid NSW Farmers’ Association dues and will be unwilling to pay Dairy Connect NSW fees as well. By year five 750 NSW dairy farmers are members. The industry’s membership goal identified in the December 2011 Dairy Connect NSW strategic planning workshop of 80% industry coverage with a stretch goal of 90% coverage is achieved.

• The NSW Farmers’ Association levies membership fees on the basis of farm turnover. For a dairy farm with turnover less than $500,000 annual membership is $675 including $155 for Industrial Relations Support. For dairy farms with a turnover more than $500,000 and less than one million total membership cost is $1,095. A simple average of these two costs i.e. $885 has been assumed for all Dairy Connect NSW farmer members between 2012 and 2016.

• It is noted that QDO charge annual fees for small dairies of as little as $600 per annum and capped at $3,080 per annum for large milk producers. QDO has achieved a membership base of 70% of Qld dairy farmers.

Vendor membership fees:

• The business case is prepared on the understanding that milk vendors do not join Dairy Connect NSW as individual businesses; rather their existing association pays an annual fee.

• For analysis purposes it is assumed that AMVA pay an annual membership fee of $15,750 (the equivalent of $50 per member across a membership base of 315. NB: AMVA membership is forecast to contract by 10% pa) to join Dairy Connect NSW. The membership fee is in addition to AMVA providing Dairy Connect NSW with office space and administration support on a cost recovery basis.

Processor and manufacturer membership fees:

• Processors and manufacturers are committed to the long term success of Dairy Connect NSW. Large processors and manufacturers might reasonably be expected to contribute $15,000 each per annum to the operation of Dairy Connect NSW while small manufacturers might stump up $150 per business operation.

• In 2017 an annual dairy processor membership fee might be $200,000 per annum for each of the major NSW processors and part or all of this fee might be targeted to RDE&E or generic milk promotion. Fees of this nature have not been included in the five year forecast (Table 7.2).


Project management fees:

• In time project management fees might be earned by Dairy Connect NSW for delivering RDE&E projects for Dairy Australia. Dairy Connect NSW would need to have its relationship with Dairy NSW and NSW DPI clarified and documented before this occurs. By 2016 it may be possible for Dairy Connect NSW to deliver up to six projects per annum with management fees of $20,000 each.

• It is noted that in 2010 and 2012 QDO earned between $110,000 and $125,000 per annum in project management fees (QDO Annual Report 20111).

Grant income:

• In addition to project management fees QDO generates revenue from grants secured and delivered. In both 2010 and 2011 grant income was three times more significant than membership fees for QDO i.e. $400,000 in membership fees compared to $1.4 million in grant income. It will be a priority for the Dairy Connect NSW CEO to research and secure similar funding. It is noted that Dairy NSW has a policy officer who has been very successful at securing grant funds for the dairy industry in NSW.

Other income (not included in the budget):

• Fighting funds – if the right issue emerges substantial additional funds are likely to be available from all Dairy Connect NSW members.

• Sponsorship – from corporates and ADF could be as much as $100,000 pa. Current best estimates of Dairy Connect NSW Annual revenue 2012 to 2016 are summarised in the table. At current estimates Dairy Connect NSW will generate revenues of $1.1 million by 2016. 7.3 Net Financial Position Under current assumptions Dairy Connect NSW operates at a financial surplus for each of its first five years. Revenue assumptions are conservative.

Table 7.2 Dairy Connect NSW ‘Best Estimate’ Funding

2012 2013 2014 2015 2016

Income from Existing SourcesCapital Interest

rateGraham Park Dairy Trust 1,300,000 4.5% 58,500 58,500 58,500 58,500 58,500 Milk Marketing (NSW) Pty Ltd 500,000 4.5% 22,500 22,500 22,500 22,500 22,500 Dairy Industry Conference 700,000 4.5% 31,500 31,500 31,500 31,500 31,500

Sub total 112,500 112,500 112,500 112,500 112,500 Dairy Farmer Membership Fees NoFarmer Members @ average $885/pa 885 250 350 550 650 750

Farmer membership fees 221,250 309,750 486,750 575,250 663,750 Vendor Membership Fees Vendor Members payment - shrinking sector 50 315 284 256 230 207

Vendor membership fees 15,750 14,200 12,800 11,500 10,350 Processor/Mfger Membership FeesLarge processor/mfger @ $10,000/pa 15000 1 2 3 4 4

Large processor/mfger fees 15,000 30,000 45,000 60,000 60,000 Small Processor/Mfger @ $100/pa 150 25 50 75 100 125

Small processor/mfger fees 3,750 7,500 11,250 15,000 18,750 Sub total 255,750 361,450 555,800 661,750 752,850

Revenue from Project ManagementRDE&E Projects $20,000 each 20,000 0 2 4 5 6

RDE&E project income - 40,000 80,000 100,000 120,000 Grant IncomeNet earnings from delivering non-core projects $25,000 each 25,000 0 2 4 5 6

Non Core projects (eg Carbon Farmer, C4C) income - 50,000 100,000 125,000 150,000 Sub total - 90,000 180,000 225,000 270,000

Dairy Connect Income from all Sources 368,250 563,950 848,300 999,250 1,135,350

2012 2013 2014 2015 2016

Income from Existing SourcesCapital Interest

rateGraham Park Dairy Trust 1,300,000 4.5% 58,500 58,500 58,500 58,500 58,500 Milk Marketing (NSW) Pty Ltd 500,000 4.5% 22,500 22,500 22,500 22,500 22,500 Dairy Industry Conference 700,000 4.5% 31,500 31,500 31,500 31,500 31,500

Sub total 112,500 112,500 112,500 112,500 112,500 Dairy Farmer Membership Fees NoFarmer Members @ average $885/pa 885 250 350 550 650 750

Farmer membership fees 221,250 309,750 486,750 575,250 663,750 Vendor Membership Fees Vendor Members payment - shrinking sector 50 315 284 256 230 207

Vendor membership fees 15,750 14,200 12,800 11,500 10,350 Processor/Mfger Membership FeesLarge processor/mfger @ $10,000/pa 15000 1 2 3 4 4

Large processor/mfger fees 15,000 30,000 45,000 60,000 60,000 Small Processor/Mfger @ $100/pa 150 25 50 75 100 125

Small processor/mfger fees 3,750 7,500 11,250 15,000 18,750 Sub total 255,750 361,450 555,800 661,750 752,850

Revenue from Project ManagementRDE&E Projects $20,000 each 20,000 0 2 4 5 6

RDE&E project income - 40,000 80,000 100,000 120,000 Grant IncomeNet earnings from delivering non-core projects $25,000 each 25,000 0 2 4 5 6

Non Core projects (eg Carbon Farmer, C4C) income - 50,000 100,000 125,000 150,000 Sub total - 90,000 180,000 225,000 270,000

Dairy Connect Income from all Sources 368,250 563,950 848,300 999,250 1,135,350

Business Case References

Cowan, T (2011) Development of a Long Term Strategy for Dairy Extension in NSW. Phase 1: Opportunities and resources for the development of an RDE&E strategy for the dairy industry in New South Wales Dairy Australia (September 2009) Dairy Moving Forward – the National RDE&E Strategy) Dairy Connect NSW Limited Workshop Report 9 December 2011 – 40 stakeholders and developed the strategic plan for Dairy Connect NSW Letter to the NSW Minister for Primary Industries 16 January 2012 Letter from Dairy Australia 8 December 2011 Milk Marketing (NSW) Annual Report 2010-2011 http://www.foodauthority.nsw.gov.au/_Documents/corporate_pdf/2010_11_Milk_Marketing_Annual_Report.pdf NSW Dairy Industry Conference Submission to the Senate Economics Reference Committee, Inquiry into the impacts of supermarkets’ price decisions on the Australian dairy industry 31 August 2011 NSW Dairy Industry Conference Briefing Paper 9 November 2011 NSW Farmers; Association Policy Statement 2010-11 Queensland Dairyfarmers’ Organisation Annual Report 2011

http://www.foodauthority.nsw.gov.au/_Documents/corporate_pdf/2010_11_Milk_Marketing_Annual_Report.pdf�

http://www.foodauthority.nsw.gov.au/_Documents/corporate_pdf/2010_11_Milk_Marketing_Annual_Report.pdf�


Appendix 1: Steering Committee and Reference Group Membership

The Steering Committee that oversaw development of this business case included: • Adrian Drury, Chair Dairy Connect NSW Steering Committee (dairy farmer) • Bob Paton, Amalgamated Milk Vendors Association (distributors) • Bill Inglis, Dairy Research Foundation, Sydney University (dairy farmer) • George Davey, RAS of NSW and Milk Marketing (NSW) Pty Ltd • Kristian Holz, Director Ministerial Liaison Office NSW Dept of Trade & Investment

A group of leaders from key dairy industry organisations have been assembled to oversee and validate the work of the Steering Committee:

• NSW Dairy Industry Conference Chair – Janet Moxey • NSW FA, Dairy Committee Chair – Terry Toohey • Amalgamated Milk Vendors Association – Col Lawson • NSW Milk and Dairy Products Association – Ken Garner • Dairy NSW – Joe Chittick • NSW DPI – Regina Fogarty

Appendix 2: Map of existing NSW dairy industry stakeholders

Appendix 3: Dairy Connect NSW Draft Constitution


Appendix 4: Competition Policy Statement

INDUSTRY STATEMENT FOR COMPLIANCE WITH

THE COMPETITION AND CONSUMER ACT 2010

There shall be no discussion or activities for the purpose of arriving at any understanding or agreement regarding price, the terms and conditions of sale, distribution, volume of production, territories, or customers. There shall be no discussion or activity for the purpose of preventing any person or persons from gaining access to any market or customer for goods or services, nor any agreement or understanding to refrain from purchasing or using any material, equipment, services, or supplies. There shall be no discussion or activity that may be construed as forestalling or limiting research and development. We, of course, expect your full compliance with these guidelines, both while in attendance at this Milk Marketing / NSW Dairy Industry Conference roundtable, and at all times and in all matters relating to Milk Marketing (NSW) Pty Limited and the NSW Dairy Industry Conference.

Anti-competitive conduct Part IV of the Competition and Consumer Act 2010 (the Act) prohibits various anti-competitive practices that limit or prevent competition. It aims to foster the competitive environment necessary to give consumers diversity of choice in price, quality and service for goods and services. For example, Part IV prohibits specified cartel conduct and other forms of conduct among competitors that substantially lessens competition in a market. A reduction in competition that may occur as a result of the collusion might allow some traders to push prices up and lower the quality of the goods and services they offer to consumers. Some anti-competitive conduct is prohibited on the basis that it has particular anti-competitive purposes or effects (i.e. cartel conduct such as price fixing or bid rigging), while other conduct is prohibited if it substantially lessens competition. A substantial lessening of competition may occur, for instance, when the ability of buyers to shop around for a deal that suits them is significantly diminished by an anti-competitive agreement


among suppliers. There are some circumstances in which an individual decision by a supplier to refuse supply is unlawful under the Act. These include a misuse of market power, third line forcing, boycotts, resale price maintenance and placing limitations on buyers and resellers that substantially lessen competition. Further information on these anti-competitive practices can be found in the ACCC publication Refusal to deal. Cartel conduct (ss. 44ZZRF, 44ZZRG, 44ZZRJ and 44ZZRK) The Act sets out a civil cartel prohibition and a criminal cartel offence. Both are based upon the existence of a ‘cartel provision’ in a contract, arrangement or understanding between competitors. Price fixing (ss. 44ZZRF, 44ZZRG, 44ZZRJ and 44ZZRK) Agreements between competitors that have the purpose or effect of fixing, controlling or maintaining prices are prohibited. Anti-competitive agreements (s. 45) Section 45 of the Act prohibits contracts, arrangements or understandings that would be likely to substantially lessen competition in a market. Misuse of market power (s46) The Act has specific provisions prohibiting powerful players from abusing their market power. These are contained in s.46, which prohibits the misuse of market power. Predatory pricing (s46(1) and s46(1AA)) Predatory pricing occurs when a company sets its prices at a sufficiently low level with the purpose of damaging or forcing a competitor to withdraw from the market. Exclusive dealing and third line forcing (s47) What is exclusive dealing, full line forcing and third line forcing? Resale price maintenance (s.48) Suppliers may try to impose a resale price on resellers to maintain brand positioning or to give resellers attractive profit margins. http://www.accc.gov.au

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