It’s even confused the Chaser team at The Checkout

Last night’s episode of The Checkout tackled the supermarket milk war in all its bewildering glory. They did a pretty good job but I reckon even the very clever Craig Reucassel got a little confused.

The problem with The Checkout’s closing argument is this: while processors don’t pay farmers more for each litre of branded milk they sell, they do pay farmers less when there is less money to go around (as Craig mentioned). So, when the processors sell less branded milk at lower margins because of the stiff competition from homebrand milk, they have to cut their costs.

Now, if you were a multinational processor, would it be easier to protect your profits by negotiating a better deal with the duopoly or simply tell dairy farmers that the price of milk had fallen? You guessed right, and they did, with disastrous consequences for farmers in NSW, Queensland and Western Australia in particular.

In other words, if you are among the one in four Aussies who buys branded milk, good on you! Until Murray Goulburn and Norco get their new efficient and 100% farmer-owned factories operating in Sydney and Brisbane, the $1 supermarket milk war will continue to hurt farmers in those states. Sadly, there seems to be no light at the end of the tunnel for farmers in WA and the milk supply there is so small now that it’s being trucked across the Nullabor to keep Perth going. There is a real possibility that UHT will become the new norm there, as it is in many parts of Europe.

The second area of confusion for The Checkout comes in its update about the MG deal with Coles. Here’s an extract:

“Coles is currently run by a coterie of former Tesco employees so it is perhaps unsurprising that this latest step mimics the approach in the UK. British supermarkets have moved to contract with farmers and cut the margin the processors make. This has led to higher farm gate prices for the farmers contracting with Tesco – but also more expensive requirements for them. Similarly, a lot of additional costs are expected for Australian farmers collectives, with Murray Goulburn spending $120 million on milk processing plants.”

The additional costs that come with Tesco deals are not in processing plants. It’s in on-farm compliance costs as Tesco dictates some aspects of how the small number of contracted farms are run.

In our case, the Coles deal is with the farmer-owned processor, Murray Goulburn, and nobody is talking about Coles making demands about the colour I paint my dairy door or how I raise my calves. Why is it different? A handful of (relatively powerless) farmers supply Tesco direct (and Woolies under its new Farmers Own scheme) whereas Coles is picking on someone closer to its own size in Murray Goulburn, which boasts annual revenues of $2.29 billion.

Co-operatives have never looked so vital to the survival of Australian farmers and the ability of Australians to take fresh food for granted.

Coles has forged this deal with MG because, contrary to Craig’s opinion, Australians aren’t stupid. They know $1 milk is not sustainable and they’ve started voting with their wallets: yes, the share of homebrand milk is falling.

This is a huge win for the little people of Australia – dairy farmers and milk drinkers alike. We truly are what we eat.

6 thoughts on “It’s even confused the Chaser team at The Checkout

  1. What the headlines should read is “Murray Goulburn support Coles with $1 milk for the next 10 years”. If you read the articles $1 milk wont go under this deal, it is being supported by a farmer co-op! What really is the benefit to the farmer? Will the “premium” be more than farmers in NSW and QLD currently get or more than VIC farmers get? Or will it be more than LION will be able to offer those farmers because they will have more Tier 2 milk, remember the WW deal with Parmalat? it effectively lowered the farm gate price but WW took no blame.
    MG’s plan on selling the milk to Coles at 80c/litre where they have previously paid 85-90c/litre. Given that it costs the supermarket 15-17c in costs they will now make 3-5c/litre on the new deal, MG spend $120mill on new factories or $48000 per MG farm supplier or $88000/farm as they intend to spend $200mill in factories. Yes this is costs to be repaid before the farmer gets paid.
    If Coles and MG were on the farmers side $1 milk would have gone but MG even though they are a farmer co-op still operate in a commercial world and behave the same.
    Amazing that Dairy Connect and ADF support this deal yet vocally have knocked the $1 milk campaign by the supermarkets.
    If you have not realised yet it is just a lot of SPIN by 2 business’s trying to look good in the consumers eye’s, while the farmers lose again!!!

    As the saying goes “beware of wolves in sheep’s clothing”

  2. Always topical blogs Milkmaid M – we really enjoy the discussion that you generate. Rick, your views reflect the discussion that wider industry is having. If it’s ok, ADF President Noel Campbell will give you a call to share the reasoning behind the ADF’s position. As always, we’re avidly watching this space and strongly in favour of a mandatory code and ombudsman.

  3. I found my way over here via a comment you made on The Conversation… and as of today I will go back to buying branded milk. For years it was Dairy Farmers only in Nth Qld, then the supermarket wars began, and I moved to metropolitan Sydney. I lost awareness of other brands and just looked at the $$ line.

    It’s still a confusing issue for me. Cassandra MacDonald’s video has helped. Same milk, same processor… same farmers, just less cash going to the farmer when more supermarket branded milk gets sold. I didn’t realise the damage my consumer spending power was doing to the farmer and I am well paid enough to not buy cheap milk, so I should stop being a mindless penny pinching consumer.

    I’m now in ACT, so it’s likely I’ll head towards the Canberra Milk brand… I can only hope that Capital Chilled Foods (their website tells me it is a joint venture between Lion & Bega Co-Op) is a good place to start for my fresh milk. I’ll be interested when Devondale fresh milk comes on the market, as I tend to head towards their other products so I’ll be an easy marketing hit to get me to move that way for fresh milk too.

    Love your blog, it’s helped educate a lazy(ish) consumer about the power of her dollar while getting COWS! & FARMING! & KIDS!

  4. Just back to this and recalling when I had a discussion with a Board Deputy Chair of MG a few years back. MG had been bleating about losing a contract for supply of cheese under their Devondale brand to Coles. I made the point that Coles would have noticed the price that MG had been supplying milk to Aldi, so MG were their own worst enemy. The only response from the said board member was that he didn’t think Coles would notice.

    If farmers want margins, the companies need to market into the top end, not the bottom end

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