March 7, 2011
Australia's milk wars to cost suppliers US$740 million
Intensive discounting by the supermarkets by Australia's biggest dairy farming supplier could cost the industry AUD730 million (US$740 million) this year.
Dairy Farmers, whose members produce more than a billion litres of milk annually, said that the discounting could bring down the prices on branded milk as consumers shift to the generic, no-name milk.
It is the first time the industry has put a figure on the potential cost of supermarket discounting since Coles started a price war in January by slashing the price of its no-name milk to AUD1 (US$1.01) a litre, forcing Woolworths, Aldi and Franklins to reduce prices too.
The Dairy Farmers analysis, which assumed the price cut lasted all year, also suggested that milk bars and convenience stores would struggle to compete with the discount generic milk sold by the supermarkets.
Coles has dismissed the analysis as based on a hodge-podge of worst-case, unproven scenarios and hypothetical assertions.
The dairy industry depends on the sales of branded milk, yoghurt and cheese as it earns little from the generic milk.
Bega Cheese has also told a senate inquiry into the milk price wars that it fears the discounting will have long-term negative impacts on the whole dairy industry and damage brands.
According to the Dairy Farmers submission to the inquiry, growing numbers of consumers are favouring home-brand milk.
The no-name milk now makes up 51% of all milk sales and 72% of full-cream milk sold in the country's supermarkets, according to the group. That is an increase from 25% in the late 1990s.
"The private-label market share has been secured and protected through heavy retail price discounting over the past decade," the submission stated.
While Coles has maintained that it will absorb their share of the cost of the discount on its home-brand milk to AUD1 (US$1.01) a litre, Dairy Farmers chairman, Ian Zandstra, described this as a specious and misleading argument because it ignores the market disruption caused by the spike in generic milk sales.
Coles spokesman, Jim Cooper, said the retailer had given a price increase to processors that was more than enough to offset any switch between branded and house-brand milk in our stores.
Separately, Dairy Farmers has said in a newsletter to members that Parmalat, the Italian-owned processor, has told some suppliers of Pauls daily access milk in Queensland they would be paid AUD0.14 a litre (US$0.14) less for the share of milk that had moved to the cheaper retail product.
Late yesterday (Mar 3), Parmalat chief financial officer, Rod Walden, said that the newsletter was not a complete representation of the situation.
He said Parmalat had not changed its farmer pricing system for many years and was not adjusting its milk pricing system as a result of current industry issues.
