Big Supermarkets Have a Dairying History

Revelations this week that big supermarkets may have been faking their price cuts and specials will come as no shock to dairy farmers.

Australian Competition and Consumer Commission has said they are prosecuting both Coles and Woolworths in the Federal Court. It is alleged that the supermarkets raised their prices on a range of items, and then reduced those prices claiming they were now discounted or on special. The fake discounts kept prices at or above the long-term prices for those items – actually a price increase disguised as a discount.

The ACCC says that the conduct they are taking to court involved 266 products for Woolworths at different times across 20 months, and 245 products for Coles at different times across 15 months, and has provided details of several case studies. These included a $3.50 product having its price increased to $5.00 for 22 days, then reduced to $4.50, and promoted as a price cut.

In response to this news, the Prime Minister has said he will prioritise a new mandatory food and grocery code of conduct and introduce legislation by the end of the year imposing multimillion-dollar penalties against supermarket giants who breach the rules.  This new food and grocery code is due to commence in April next year. eastAUSmilk has made several strong submissions to government in support of making that code mandatory, and strengthening it through properly addressing bullying, amongst other changes.

eastAUSmilk is often told by the big supermarkets that they acknowledge the pain caused when they drove farmers to bankruptcy and suicide during the dollar-a-lite milk era, but they say that’s all in the past. They say they’ve changed, but if the ACCC succeeds in their action, it will confirm that the culture of the big supermarkets is the same, and they’ve just shifted targets. In fact, there’s been no review of their business strategies based on the harm they did with dollar-a-litre milk, no update of their internal code of ethics – they’ve just moved on to other ways of making massive profits, and could change strategies again at any time they chose.

eastAUSmilk has called for changes to the Dairy Industry Code to address the impact of big supermarket pricing and margins on the dairy supply chain.  The Commonwealth government has promised to begin their review of the Dairy Industry Code in September, but we expect this to be delayed – slightly – because of the reshuffled Agriculture portfolio.

Mike Smith, eastAUSmilk Government Relations Manager

Milk prices and dairy code

Now we are into January, everyone in the dairy industry will start to focus on what will happen to milk prices in July. The dairy code requires processors to publish preliminary prices and contracts by 1 June and some will make announcements well before then. And speculation will increase in the coming months as both farmers and processors try to feel out what will happen.

There has been a lot of complaining by some processors and processor representatives about the dairy code and milk prices. Some media commentators, claiming to present a professional view, have simply repeated the views of some processors and their representatives.

They claim the Dairy Industry Code is distorting the market and forcing farmgate prices too high. That’s simply not true.

The Dairy Industry Code has corrected some of the market failures in the dairy industry and gone some way to ensuring farmgate prices reflect competition for milk. That is about supply and demand for milk across Australia and within each different region. When the supply of milk reduces, as it has so significantly in recent years because of significant cost increases, the price would logically go up. Processors willing and able to pay more will attract milk. Those not willing to pay more lose milk to their competitors and will face a shrinking business. It’s all pretty simple, really. Some in the industry don’t seem to understand these economic basics, although most farmers do.

What would happen if some processors, and the media who parrots their views, got their way and milk prices fell by $2/kg or around 15c/L?

Disaster! There would be absolute carnage and milk production would probably halve across Australia in a few years. Is that the outcome that some processors want, or do they think farmers are magicians and can continue to produce milk while losing money?

Like it or not, the Australian dairy industry has contracted massively over recent decades, as a result of income being stripped from farmers. It is now an industry largely focussed on domestic demand and increasingly on domestic fresh milk. It is time for all to recognise this and stop living in the past.

Eric Danzi, CEO eastAUSmilk

Processors want the Dairy code of practice watered down

The code of practice has been in place for 3 years now and has had a significant impact on improving competition in the industry. It has created a fairer and more balanced bargaining between processors and farmers and this is exactly what the code was introduced for.

Farmer advocacy groups including eastAUSmilk and Australian Dairy farmers where key advocates for introducing the code whereas processing representatives tried to block the introduction of the code. A special thanks to Craig Hough from Australian Dairy Farmers who was key to drafting the code. Craig finished his time at Australian Dairy Farmers last week and his knowledge, drive for change and enthusiasm will be sorely missed.

Some processors are now complaining that the code does not give them enough flexibility when competition between processors drives the price to farmers up. These processors and their representatives want the code watered down so processors can reduce prices to farmers like the bad old days pre the code. This will allow processing companies worth billions of dollars to once again dictate to the small family farms that supply them. Their attitude is not surprising since processors were opposed to the code and have never wanted farmers to have any more bargaining power.

Some processors have competed well in the market to attract additional milk supply. The code has allowed this to happen much more readily than it was previously. Are these processors, who want to compete for and attract milk, also complaining that the code needs to be watered down? I would think not.

I would note that processors have identified the boundaries of the code and found out what they can and can’t do. In several areas, this means the intent of the code is not translated into practice. This appears a more significant issue to me than complaints by processors that small family businesses now have too much power over multi-billion dollar companies.

Eric Danzi, CEO eastAUSmilk.

eastAUSmilk presses Federal Minister on Competition

eastAUSmilk has continued to actively pursue priority issues, and this week met with senior advisors to the Commonwealth Minister for Agriculture, Fisheries and Forestry, Murray Watt.

Chief Executive Officer of eastAUSmilk Eric Danzi and Government Relations Manager Mike Smith discussed at length with the Minister’s advisors the proposed purchase by Coles of Saputo milk processing plants in New South Wales and Victoria, with a focus on the issues of concern already identified by the Australian Competition and Consumer Commission.

The ACCC has expressed concern about the impact of this proposed acquisition, and noted it could see fewer processors competing to purchase and process milk in the New South Wales central coast region, and potential impacts on other processors and dairy farmers further away.

Their preliminary report can be downloaded from the ACCC website, and they propose to release their final findings about this proposed acquisition on September 14.

eastAUSmilk stressed to the Minister’s advisors that the outcome, if this sale goes ahead, must see the market for milk throughout New South Wales and Queensland deliver fair and effective competition, and no reduction in the milk sale options open to farmers.

The meeting also discussed in detail the need for an urgent review and updating of the Dairy Industry Code, and the kind of changes eastAUSmilk wants to see. A review of the Code is due this year, and eastAUSmilk has requested that it proceed without delay.

eastAUSmilk has sought a commitment from the Minister’s office, and his department, that they will continue to discuss a wide range of industry issues, including technology uptake by dairy farmers, sustainability and efficiency, and animal welfare.

A follow-up and more detailed discussion is planned, in relation to all of the issues raised, with the Minister’s office.

Mike Smith, eastAUSmilk Government Relations Manager

EastAUSmilk meet with Ministerial Officers in Canberra

Queensland dairy farmer and eastAUSmilk Board Chair Matt Trace, and Government Relations Manager Mike Smith, were in Canberra last week, discussing important issues with public servants and Ministerial Offices.  Amongst others, they met with Department of Agriculture, Fisheries and Forestry, and advisors to the Assistant Minister for Competition Andrew Leigh and Treasurer Jim Chalmers.

Competition policy, and the proposed purchase by Coles of Saputo milk processing plants in Victoria and NSW, were discussed with everyone, and the need for an urgent review of the Dairy Industry Code was stressed. eastAUSmilk made it clear the industry needs more milk processor competition, not less. Other issues raised included industry sustainability opportunities and needs, structural reform of industry bodies, extending Queensland’s previous “fair go” marketing campaign, animal welfare, and foot and mouth disease.

The eastAUSmilk team were at pains to stress that while some dairy farmers can look forward, plan, and invest, many are still struggling under debt and stress arising from dollar-a-litre milk, drought, floods, and other pressures beyond their control. This impacts the capacity of the industry to withstand unreasonable or uncompetitive behaviour by processors or big retailers, such as milk prices not matching increases in farm input costs.

They also stressed competition laws are fundamentally flawed when no consideration is given by Australian Competition and Consumer Commission or Government to issues such as ongoing access to locally sourced fresh milk, regional community resilience, fairness between big business and small, and more.

More meetings will be held in the next week, to ensure politicians and public servants at every level understand current conditions in the industry, and the importance of these issues to dairy farmers.

ACCC expects to announce the results of their review of the proposed Coles/Saputo deal on 20 July. Their options include waving it through, rejecting it, or raising competition issues to be addressed. A further round of discussions is planned once that review is finished.

Mike Smith, Government Relations Manager eastAUSmilk