Coles, Aldi stay low as flak flies over `loss leading' milk prices

Coles, Aldi ignore $1/litre milk price rise and cop dairy flak


Agribusiness
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Dairy farmers praise and public support for the modest Woolworths price rise

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Supermarket big guns, Coles and Aldi, are refusing to budge, but Woolworths continues to be widely applauded for finally breaking the controversial $1 a litre price ceiling on cheap house brand milk.

For the first time since the dollar milk war began more than eight years ago, Woolworths' house-branded fresh milk price lifted on Tuesday, by 10 cents a litre, selling nationally for $2.20 and $3.30 respectively for two- and three-litre lines.

The retailer also promised every cent of the increase would go to the 450 dairy farmers who supply Woolworths' cheap milk lines, although this represents only a small portion of Australia’s 6000 milk producers.

Despite intense pressure on other supermarkets to follow Woolies’ lead, Coles – which initiated the $1/litre milk furore in January 2011 –  refused to acknowledge the challenge, saying it wanted to find a better way to assist farmers.

It intended to liaise with relevant parties including government and the ACCC.

While we understand consumers, too, are experiencing higher living costs, it’s time we started a conversation about the price of food - Paul Mumford, United Dairyfarmers of Victoria

However, while announcing a $738 million half-year profit, Coles managing director, Steven Cain, said he would happily participate in any scheme which lifted milk prices for all milk brands sold by all retailers.

Peak industry body, Australian Dairy Farmers, noted Aldi actually sold its cheap milk for 99 cents/litre, yet had, until recently, generally “flown under the radar” as the milk war focused on Coles and Woolworths.

“Aldi has a unique opportunity to move on discount milk and be a hero to farmers,” ADF chief executive officer, David Inall said.

Agriculture Minister, David Littleproud, said supermarkets must stop charging an “idiotic” low retail price for milk which effectively sold at a loss.

United Dairyfarmers of Victoria president, Paul Mumford, said $1/litre milk did not reflect production costs and supermarkets had, at farmers’ expense, offered a “loss leading” product to get customers in the door.

“Over the past few months we have seen farmers across Australia struggle as a result of significant weather events from devastating drought to once-in-a-lifetime flood events which will have long lasting impacts including significant costs on farm businesses,” he said.

“While we understand consumers, too, are experiencing higher living costs, it’s time we started a conversation about the price of food.”

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Dairy farmer groups Australia wide have praised the modest Woolworths price rise as a “start” towards fairer milk marketing.

Public sentiment has also been widely supportive, despite Coles arguing many customers faced cost of living pressures and it did not want them disadvantaged by a 10c/litre price lift.

Public support

Response to an opinion poll by The Age newspaper early this week attracted more than 90 per cent support of Woolworths' milk price rise.

Editorial commentary in The Australian newspaper opined that while food price increases were not normally welcome news, consumers were well aware of dairy farmers’ plight as soaring drought feed and water costs undermined profitability.

We believe it's the right thing to do and a key step in shoring up fresh milk production in Australia - Brad Banducci, Woolworths

Canning the contentious “dollar milk” price was a chance to restore farm financial confidence and boost regional community confidence, according to ADF's Mr Inall.

The latest Dairy Australia national survey had found producer confidence in the future of dairying had plunged from 75 per cent to just 47pc in the past four years.

It also showed an alarming 40pc of farmers did not make an operating profit last financial year.

“Farming families put tireless effort and resources into producing a quality product, day in and day out, and to see it devalued to the consumer has a deep and lasting impact,” he said.

Brad Banducci

Brad Banducci

Regional survival at stake

Woolworths managing director, Brad Banducci agreed long term sustainability of the dairy industry – and its regional communities – was “incredibly important for Australia”.

He said while being “acutely aware” of budgetary pressures facing many customers, Woolworths did not take lightly the decision to lift milk's retail price.

"We believe it's the right thing to do and a key step in shoring up fresh milk production in Australia,” he said.

“Clearly something needs to change and we want to play a constructive role in making it happen.”

Woolworths’s 10c increase now only returns the supermarket price to where the $1 price was in 2011 - Andrew Curtis, SA Dairyfarmers Association

However, South Australian Dairyfarmers CEO, Andrew Curtis, said while Mr Banducci’s comments were welcome and recognised  the “harm done by predatory market pricing by supermarkets”, an extra 10c/litre did not address “underlying flaws in the supply chain”.

True $1 milk value now 89c

Mr Curtis said the $1 milk price introduced in 2011 was only worth 89 cents today.

“Woolworths’s 10c increase now only returns the supermarket price to where the $1 price was in 2011.

“Production costs are driven by many factors such as drought, cost of feed, energy costs, fuel costs, and more.

“We really need an industry shelf price reflecting all points in the supply chain.”

Dairy Connect CEO, Shaughn Morgan, believed dairying was at a crossroads, with the next 18 months to determine not just if the industry would be sustainable, but if it survived as we knew it.

Coles and Aldi demonstrate a lack of regard to maintain a viable Australian dairy industry - Shaughn Morgan, Dairy Connect

Farms were closing at an alarming rate and fresh milk production had dived.

“Collectively we must act to ensure the industry survives,” Mr Morgan said.

“Woolworths has taken a public first step, but Coles is abrogating responsibility and its social licence with the community may suffer.

“Coles and Aldi demonstrate a lack of regard to maintain a viable Australian dairy industry.”

Queensland Dairyfarmers Organisation president, Brian Tessmann, was delighted Woolworths had finally “shown leadership”.

In contrast, NSW Farmers' diary chair, Erika Chesworth, said despite the known impact on returns for dairy farmers and current drought conditions, Coles and Aldi pledged to continue to stock cheap fresh milk.

“We're shocked at the stubborn reactions from Coles and Aldi to refuse to remove $1 milk from their shelves.” 

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The story Coles, Aldi stay low as flak flies over `loss leading' milk prices first appeared on Farm Online.

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