Retail milk prices going up, but retailers and Dairy Farmers slow to move

Farmgate milk prices moved up significantly on 1 July with farmers receiving between an extra 15 and 20c/L. This was long overdue and reflects the increase in cost of production rather than giving farmers a significant profit. In future years, the price will need to continue to increase to allow farmers to make a reasonable profit or milk production will continue to decline.

At the retail level, prices started to move soon after 1 July as expected. Pauls moved very quickly to $4.00/L in both Coles and Woolworths stores and Norco also moved quickly to $4.10/L. These increases were as expected and in line with increases in farmgate prices.

However, no other retail milk prices have moved. Dairy Farmers are still at $3.55 in both Coles and Woolworths. Woolworths milk is still only $2.60 as is Coles milk. Farmers Owned is still only $3.20, which is lower than the $3.40 it was earlier in the year.

It would be expected that Dairy Farmers will lift to around $4/L but it is unclear when. Dairy Farmers owner Bega would be losing significant money selling at $3.55/L given the cost of purchasing milk off farmers has increased so significantly on 1 July.

Surely Coles and Woolworths will lift the price of their milk to at least $3.00/L but more likely $3.20/L in the coming weeks. This is not only in line with increases in farmgate prices in Queensland, but very similar increases in farmgate prices Australia wide. There is no justification for retailers leaving prices at $2.60 which is clearly a level at which retailers would be losing money. It is unclear whether retailers are in fact the ones taking this loss at present or whether the processors that package their milk are being forced to take a loss until retail prices move.

What is the impact of those brands, including Coles and Woolworths, not lifting their prices? These brands would be taking market share off those brands that have lifted prices. This is extremely bad for those negatively affected brands. Whether this is a conscious decision or not, those brands that haven’t lifted prices need to do so immediately to ensure that the dairy industry, both farmers and processors, can make a profit and remain viable.

Eric Danzi, Co-CEO eastAUSmilk