Milk wars linger despite Coles intervention

But the giant retailer remains under significant attack for straining the dairy sector’s viability by continuing to sell $1 per litre milk which has long-been regarded as unsustainable by rival Woolworths.

In May this year, Coles announced it would establish a Farmers Fund Milk brand which would deliver 20 cents per litre into a dedicated support fund, to aid the dairy sector’s long-term health.

It’s understood Coles will reveal the new concept on some-time this week, consisting of a two-litre product to be sold for $2.45, only in Victoria.

The 40c will be deposited into a fund set to be managed by the Victorian Farmers Federation to provide $20,000 grants to farmers affected by the controversial Murray Goulburn price claw back which sparked the viability crisis in late April.

The situation has seen direct intervention from Prime Minister Malcolm Turnbull and Nationals leader Barnaby Joyce, in calling milk processors to account.

It’s understood Coles will keep the extra 5 cents from the sale of the new two litre product but the company says it won’t say anything officially, until the actual announcement.

But the dairy sector remains angry at the dominant retailer for continuing to sell $1 per litre milk; a move industry says has conditioned consumers into buying cheap product while causing longer-term damage, despite a short term spike in consumption volumes.

Tensions surfaced in a letter sent by Dairy Australia Group Manager Trade and Industry Strategy Charlie McElhone to dairy farmer representatives on August 26, expressing regret for a recent miscommunication when outlining the damage cause by the ongoing $1 per litre milk strategy.

Mr McElhone’s letter was sent to Australian Dairy Farmers acting President David Basham and copied into State based dairy farmer industry leaders in Victoria, NSW, Tasmania, Queensland, SA and WA.

It conceded an analysis in DA’s June fresh milk report had caused market confusion about the impacts of the major supermarkets selling milk for $1 per litre over the past five years.

That original DA analysis said over the five years to the end of 2015, the total milk market had increased by an estimated $325 million in retail value to nearly $4.6 billion.

“DA is concerned that the analysis appears to have been deliberately misinterpreted to suggest that the introduction of the dollar a litre milk policy has not been detrimental for the dairy supply chain by eroding profitability for our processors and producers,” the letter said.

“DA is disappointed that this analysis has been misinterpreted in such a fashion and will ensure that future information on this topic prepared in future does not allow this to happen again.

“The fact that turnover has increased in the fresh milk category in the last five years does not suggest that $1/litre milk has had a positive impact on the Australian dairy industry.”

Mr McElhone - a former economics and policy manager at the National Farmers’ Federation - also updated the analysis in his letter, showing a decline in fresh white milk consumption.

“Since this policy’s implementation in 2011 it appears that after an initial lift in demand for consumers in response to discounted milk, they (consumers) have become accustomed to paying the reduced price for fresh white milk and consumption patterns have since reverted back to pre-discounting levels,” he said.

“Therefore the implementation of the discount pricing strategy has ultimately failed to lead to a sustainable lift in per capita consumption of fresh white milk.”

Mr McElhone’s analysis also looked at the shift in consumer buying behaviour since the dairy crisis controversy first made national media headlines in May and ignited ferocious public debate, during the federal election campaign.

His letter said recent industry challenges had prompted a shift in fresh white milk consumption from private label to branded milk sales as consumers, “take proactive steps to support Australian dairy farmers”.

Mr McElhone’s analysis showed recently released data of supermarket sales which outlined a 15pc lift in the company branded share of fresh while milk supermarket sales since the farm gate milk price stepdown.

“The message about the detrimental impact the private label is having on industry has clearly resonated and consumers are demonstrating through their milk purchasing behaviour that they are prepared to support farmers by shifting to company branded milk,” he wrote.

“The recent fresh while milk supermarket sales data suggests that the processor pricing issues have brought the consumer sentiment to the surface and drawn consumers to act on this underlying sentiment.”

During the election campaign, Mr Joyce acknowledged the $1 per litre milk pricing policy had impacted the industry but urged other major supermarket retailers to follow Coles, after its new milk fund brand was announced, and increase prices.

“I know other people that have a sense of cynicism about it, I don’t,” he said after meeting with dairy farmers in Victoria.

“Let’s make sure that we get a whole range of the retailers understanding how important it is to get a price of milk that actually reflects the work that the dairy farmers put in.”

WA One Nation Senator Rod Culleton agreed the ongoing policy of selling milk for $1 per litre was hurting dairy farmers and stronger government action was needed.

Senator Culleton said consumers should boycott buying the cheap home branded milk product from the major retail supermarkets and “we should bring back the milko”.

He said he supported home delivery milk businesses that can provide fresh product to consumers directly and also supplying drinking-milk product into schools for free.

“The milko is a great little franchise business - we need to bring it back – and I’d buy one for my son tomorrow if I could,” he said.

The Coalition announced a government support package during the federal election campaign that included $555m in dedicated dairy industry concessional loans and plans to implement a milk pricing index to improve transparency.

The Australian Competition and Consumer Commission and the Australian Securities and Investments Commission have also been commissioned to investigate the crisis and whether the contributing activities of milk processors, in particular Murray Goulburn, were misleading or deceptive.

The ACCC is also looking at supply chain structural issues and responsibility sharing between dairy farmers and processors and is expected to make a final report to government in the second half of 2017.

Mr Joyce has remained optimistic that the dairy crisis will be alleviated when over-supply issues on the world market are resolved; given strong and growing demand remains in export markets, especially in Asia.

Last week, he was forced to reject statements made by Independent Tasmanian Senator Jacqui Lambie suggesting he backed a 50 cents per litre milk levy as a means of supporting dairy farmers.

The spokesperson said the Deputy Prime Minister and the government had never indicated support for a milk levy.

“Additionally, the government has noted concerns from industry, including the Tasmanian Farmers and Graziers Association, which stated that “there are other options that could be better,” the spokesperson said.