The smoking gun: the numbers reveal Coles’ dairy damage

Please, just read this article by dairy analysts, xCheque, on the damage caused by the supermarket war. Some excerpts for you:

“The supermarket’s pricing strategy has squeezed the processors to near death and they have responded in the only way they can – attack their single largest cost of production – the milk price. In turn, the dairy farmers of northeast Australia have turned off the tap.”

“It is undeniable that Central & Northern NSW and Queensland milk production has dropped dramatically in the past two years.

“It is also undeniable that the southern exporting states are seeing no such effect – this is despite seeing a downturn in the global dairy industry over the last year.

“It is also undeniable that we haven’t seen a production drop like this since the period after dairy deregulation more than a decade ago.”

“Stop and think what you are doing Colesworths. You have taken a very blunt axe to the Australian dairy supply chain. In our view you are definitely in denial if you think that you and your shareholders have no responsibility for the long term social health and economic wealth of Australian agriculture.

“Editor’s note: Apart from the confirmation in milk production data, not much is new in this debate. Our subeditor (and all of us) were however particularly incensed at the most recent example of ignorance and insensitivity by Wesfarmer’s boss Richard Goyder. Clearly denial of responsibility goes right to the top of that organisation and there are no remaining traces of empathy with the company origins.”

5 thoughts on “The smoking gun: the numbers reveal Coles’ dairy damage

  1. Good on ’em for posting this article Marian.

    Even though you have posted at length on this topic, I’m still confused about the role of processors that are owned by cooperatives. Why do they agree to sell to Coles and Woolies if it causes so much pain to their shareholders? Is it simply because there such an excess of milk in south east Australia that ‘any price is better than no price’ or is it more complicated than that?

    The other thing I don’t really get is, if the cheap milk is having such a devastating effect on producers, why hasn’t the southern production dropped significantly as well? Sure, dairy farms don’t just close down but if you are losing money producing extra milk, wouldn’t you just reduce the amount you produce (and hence lose less money)?

    The other thing I was wondering (not saying it is true) but could it also be that because the north have had a few shocking years wrt weather – maybe this is another reason for the decline in those regions?

    (also while the mob that wrote the article did a good job they should be (lightly) horsewhipped for using different scale graphs for northern and southern markets – the drop in the north is so small that it wouldn’t even register on the southern graph. )

    • The short answer is that the southern milk can be exported (and, usually, around half of it is), while the northern milk cannot. Imagine you were a southern processor with the ability to make everything from butter to skim milk powder and the supermarkets offered you a paltry price for your milk. If that paltry price was lower than you could sell it for on global markets, you’d politely tell them to go away.

      If you were a northern processor with no ability to make anything other than “fresh milk” and the supermarkets offered you a paltry price for your milk and there were no other takers, you’d swallow your pride and sell.

      The fundamental problem the northerners face is that their milk supply is so small (relatively) that they find it hard to justify investing in expensive value-adding factories because they just don’t have the scale needed to operate one efficiently. That means no export and total reliance on the domestic market for fresh milk. Unlike grain, fresh milk cannot be stockpiled until the price becomes more favourable and trucking it around the country in refrigerated tankers is really costly. If you have milk, you must sell it and sell it NOW. That’s s very precarious position (for processors and farmers alike), especially given that you can’t tell the cows to turn milk production on and off whenever you feel like it!

      Nope, it’s not the weather. We have just come out of a 12-year drought, so production should be up!

      Does all that make sense?

      • Thanks Marian, makes perfect sense.

        Sorry to labour the point but if the southern producers do have the range of options, why are processors selling milk to C&W at such a low price? Are the international markets so depressed that they can’t get a better price overseas?

        • That is a very good question and one I simply cannot answer. Having said that, we produce far too much milk for it all to be consumed domestically and not all southern processors are created equal.

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