What the cold, cold heart of Coles reveals

The man who directs the face and voice of Coles must have become a little overconfident. In a breathtaking display of arrogance, Coles’ general manager of corporate affairs, Robert Hadler, addressed an audience of spin doctors with this presentation: http://www.documentcloud.org/documents/800088-reputation-coles.html#document/p5

Plenty of people have discussed why this presentation was in such bad taste. Callous, even.

But the part that really caught my attention was the role of our co-op, Murray Goulburn, in Hadler’s “case study”. The gloating Hadler describes the deal with Murray Goulburn as “The game changer”.

Hadler’s right about this but not in the way he means, I suspect. The Hadler case study goes to show just one thing: no matter how Coles tried to spin $1 milk, Australians knew it stank and none of their ads, infographics or appearances by Curtis Stone could fix it. Until, finally, Coles actually did something to address the damage caused by the milk war: an unprecedented 10-year deal that was too good for the co-op to refuse.

Now that’s not a case study in spin, Mr Hadler, that’s a case study in people power.

PS: If you would like to keep up the pressure for Coles to do the right thing, add your voice to this petition by Queensland ag teacher, Lisa Claessen, who was compelled act after her students became casualties of the ColesWorths milk war.
 

The co-op does a deal with the devil and keeps its soul

I never thought I’d say this but some of my milk will be sold on Coles’ shelves in both homebrand and Devondale cartons from next year. And I’m pleased.

You see, the co-op we supply, Murray Goulburn, is a giant too. It processes around 35 per cent of Australia’s milk and earns $1.17 billion in exports, making MG one of the largest container exporters from the Port of Melbourne. In other words, it doesn’t have to sell to Coles and Woolies, giving it much greater leverage with the supermarket duopoly. It also has the scale needed to be an efficient processor. Most importantly, its number one goal as a 100% farmer owned co-op is to maintain the profitability of its farmers.

All the same, it is confronting when “our” co-op does a deal with the devil. Has it sold out on us?

I asked dairy analyst, Jon Hauser of Xcheque for his thoughts. “My view is the news is very, very positive,” he said. “This is one of the few things that has the potential to lift the returns for farmers by maybe two or three cents per litre and, perhaps more importantly, it can reduce the volatility of farm gate prices.”

The thing is, while Murray Goulburn exports around half of its milk, reducing our reliance on the supermarkets, that exposure to international commodity prices and the exchange rate can be painful, too. International commodity prices rise and fall like a cork in a bottle and the average Aussie dairy farmer loses about $9,000 (according to my back of the envelope sums) with every cent the Australian dollar rises against the US dollar. Of course, it’s at record highs right now and not looking like falling below parity any time soon. The uncertainty that comes with that volatility makes it very hard for farmers to attract finance and invest with confidence in their businesses.

On the other hand, I wondered why Murray Goulburn could make a profitable $1 milk deal with Coles when Lion, the company currently processing Coles’ homebrand milk, cannot. Jon Hauser thinks it’s largely an issue of supply chain efficiency.

“Leaving aside the aberration of $1.00 discount milk, branded milk retails at about $1.60 per litre and supermarket private label at about $1.20 per litre,” Hauser says.

“Farmers are getting 25 – 35 % of the consumer dollar. In the UK and the US farmer share is closer to 50%. Direct supply by a farmer co-op removes the middleman that is adding cost in marketing and collecting additional value from their brands.

“It is true that the supermarkets will become ‘the brand’ but the farmer co-op should also able to retrieve some of this value. In the case of the Coles/MG deal, MG will get part of that return from the ranging of their own Devondale brand.

“What is most critical in maintaining a balance of commercial power is the ability of farmers to sell their milk to a range of alternate customers. Murray Goulburn has the diversity of product and markets to do that and can now genuinely claim that they have a balanced portfolio of domestic and export sales”.

It all sounds very positive for existing Victorian Murray Goulburn dairy farmers like me. But what about for farmers near Sydney, who have been supplying Lion and Parmalat and who traditionally get so much more for their milk than we do yet depend almost exclusively on supermarkets?

Mike Logan, the head of Dairy Connect, which represents the NSW dairy sector, describes today’s announcement as a “game changer” and in a letter to farmers, had this to say:

“We have three big changes on the table at once;
1. The manufacturing milk price rise
2. The drop in production so that NSW and Qld are now short of fresh milk
3. New models of supply to the supermarkets

“This all adds up to change.

“For the NSW dairy industry it may mean:
1. Investment in new processing capacity
2. A new pricing model for the whole fresh milk industry
3. Re-energising brands such as Devondale and Norco
4. Relocation of a large number of farmer dairy suppliers from one supplier to another
5. Changing role of the processors and processing capacity
6. A risk for the milk vendors as the processing sector changes.

“…the supermarkets have been true to their word and have been looking for new ways to create a sustainable future for the NSW dairy industry. We have to look past the $1/litre milk and build a new future.”

“However, these changes will be at considerable cost to some people. We need to be careful and respectful of the impact of these changes. We do not want to create a situation of winners and losers.”

The reality is, though, that there will be losers. Commenting on the future of the current processor of Coles’ milk, Lion, prominent NSW dairy farmer, Lynne Strong (@CHDairies) said on Twitter that “They have lost QLD plus NSW Coles contracts Cant see them surviving this one #sadbutrue”.

Lion is almost certainly not going to be the only loser in what all agree will be massive upheaval in New South Wales. But there will be winners and maybe, just maybe, represented by an increasingly powerful co-operative, dairy farmers will claw back a little dignity. And you, dear milk drinker, will soon be able to buy 100 per cent farmer-owned fresh milk knowing that all the profits stay right here in Australia.

Design a warning label for cheap milk

The people who make milk and the people who drink it are on the same side. We all want safe, high quality food at a reasonable price without compromising the way we care for our animals or land. Put simply: sustainable food.

But when you stand in front of the supermarket fridge, there’s no way of telling what is sustainable. There’s nothing on the label that says: “WARNING: Buying milk at $1 per litre will mean your fresh milk will soon be flown to China“.

My advice is to keep it simple and steer clear of plain label milk. It’s looking after the interests of the big end of town and all the little people – milk producers and milk lovers – are the ones who will ultimately pay the price. It’s time for us all to make a stand – please tell everyone who will listen.

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.