I asked UDV president whether dairy farmers should tip their milk down the drain

I’ve been asked a few times why dairy farmers don’t just refuse to supply supermarkets or tip our milk down the drain in protest at the unsustainable price of milk. Meanwhile, the actions of the Brits in blockading milk processors has been spectacularly successful. I thought I’d put a few “burning” milk price questions to the president of the United Dairy Farmers of Victoria, Kerry Callow, who kindly offered the following replies.

Kerry Callow

UDV president, Kerry Callow

MMM: We’ve all heard that $1 milk is a big deal for farmers but what about consumers? It sounds like a great deal, especially for families doing it tough!
KC: Milk at $1 is obviously attractive to consumers. Especially those with limited incomes and young families to feed. Dairy farming families understand limited incomes. They have had a cut in prices they receive – like having a salary cut. But this is not just about the here and now. It’s also about what’s sustainable. What will consumers have in years to come? Milk at $1 a litre retail is not sustainable for dairy farmers to produce. In Queensland it is reported that already 30 farms have left the dairy industry and more will follow. And consumers will have noticed the challenge in finding non-supermarket brand full cream milk in the dairy sections. This is a strategy for the supermarkets to dominate the supply of milk products industry. It is hard to see how consumers will keep the choices they currently enjoy. Farmers cannot afford to produce milk at the current price.

MMM: Why don’t farmers simply refuse to sell the milk at such low prices?
KC: Dairy farmers also have families to feed, children to educate and bills to pay (power has gone up 16% since the end of June, refrigerant gases required to cool milk have skyrocketed). And dairy farmers also have contracts to supply milk to processors to fulfil. The financial penalty to not supply is greater than the financial penalty to supply at a loss.

MMM: What about tipping the milk down the drain for a few days?
KC: Tipping milk out for a few days doesn’t fix the problem. (Disposing of milk that way does create added management challenges on farm). The problem is that supermarkets have decided to use milk as a ’loss leader’ and hold the price of milk down to ridiculous levels.

MMM: Is the VFF/UDV considering action like the farmers took in the UK? Would it work here?
KC: There is also discussion in New South Wales and Queensland about taking direct action. Because dairy farmers in those states rely heavily on the fresh milk market they are more exposed to the supermarkets pricing actions. Taking direct action is difficult because in this case the focus of dairy farmers angst is not a government or agency or authority, it is a commercial entity that has shown limited capacity to hear farmers concerns or acknowledge that their actions are directly and adversely impacting dairy farming families. That said, farmers are getting frustrated with the current situation.

MMM: Is there a silver lining to the $1 milk campaign?
KC: Not really. The supermarkets will point to milk consumption being higher now than before the retail milk price was slashed. But we think the consumer is heading down the road of less choice for milk products. And now we have other products like cheese and butter being marketed heavily on price. That is not a positive outcome.

The casualties of the milk war still to be counted and breaking news says they will grow

Media coverage of the senate inquiry’s report on the milk war by Coles suggests there have been only victors but this only tells half the story, for every war must have casualties. Instead, my reading of the report is that the government feels there is not much it can do about the fallout.

Gobbledegook like this:

…the ability for processors to ‘walk away’ from negotiations with collective bargaining groups (as highlighted during the committee’s 2010 inquiry), market realities such as the number of drinking milk processors in some areas and the fact that the processors must deal with the two major supermarket chains that dominate the grocery sector, can mitigate the benefits of collective bargaining arrangements.

and this:

Much of this information, however, concentrated on concerns about shifts in sales away from the processors’ branded milk products to the discounted supermarket private label milk. As a matter of overall principle, these types of free market outcomes should not be a matter for government. Many private label grocery products have grown in share in recent years…It should not be a matter for public policy to protect brands that consumers no longer value. It also does appear that the steadily increasing sales of private label milk—which have more than doubled their share of sales in supermarkets over the past decade—is a trend that is unlikely to be reversed.

…actually means that dairy farmers are standing right in the path of the cross-fire as Coles and Woolies spray litres (or should I say “rounds”?) of discounted homebrand milk at each other.

On top of all this, there are news reports that private labels will soon occupy far more supermarket shelf space. It won’t be just dairy farmers in the firing line. All of Australia’s food manufacturers and producers should see this milk war as simply an opening salvo.

How ironic then, that the most articulate description of the milk war’s impact comes from Woolworths:

…this price move has effectively re-based the price of white of milk across Australia overnight, and for an unknown period into the future, which also potentially devalues the whole milk category in the eyes of the consumer. In effect, the consumer baseline for price is now at 1990s levels, but with 2011 input costs for all parts of the supply chain.