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.