Could the milk crisis turn on major retailers

Australian Milk is finally in demand from China and it could create a crisis for the major retailers who will be forced to buy the milk they sell at benchmark export rates instead of screwing down the local milk supply chain so far it breaks as it has done in recent years.  As a consumer of milk I am a little concerned, but as the former State Manager of the Queensland Export Council, I am delighted for the opportunity it brings our milk producers who have struggled through a decimating decade in the dairy industry.   The ACCC

Several years ago, Coles and Woolworths launched a price war that drove 2L cartons of milk down to $2.  It was wonderful for consumers, but terrible for the dairy farmers industry.  The pressure placed on the supply chain was enormous and there was little or no support in Queensland where I saw it first hand.

Each year in the last three I have taken my young family to a dairy farm.   Watching the activity at this dairy farm is a beautiful thing.  The farm we visit has been running for four generations.   The people who run it, live its lifestyle with incredible integrity, growing their own food, breeding their own animals, bartering their goods within the community in a way that you only expect to happen in prior generations.   Sadly, with the prices being offered by the major milk companies and the major supermarkets they can barely afford to feed their family members.  Milk, the last time we visited the farm, was being sold at 52c a litre into the supply chain at the farmer’s end.  The farmer we visited had a target of 500 litres he was expected to reach for each milk collection, which was done every second day.  If he was even a litre under he had to pay a fine of $150 to the milk company.  When you add it up, for all the work involved in dairying, it is a tough lifestyle and one that it is incredibly hard to staff.  So knowing this, when I read about the ACCC launching action against Coles for its treatment of suppliers I smiled a little.

Barnaby Joyce has weighed into the argument yesterday saying “what was a great trick for a few years will turn into a very bad business plan.”  And I tend to agree.  There is no love lost between many of the Australian retailers and their farm-based supply chain.  In fact, I sat in an agribusiness meeting last year with some of Queensland’s largest companies who all attested that the turning point for their businesses was creating demand offshore.  Once an Australian agribusiness has customers offshore that are willing to pay a higher price for volumes, they simply have no need to sell to the lowest bidder, frequently the Australian supermarkets who keep placing downward pressure on farmers and manufacturers.  They also spend a lot of effort trying to drive out brands and lock in their own home brand positioning.

In the Sydney Morning Herald Barnaby Joyce said in northern NSW alone that 16,000L of milk was being flown to China where it was fetching $7 to $12 a litre.

“They want to go up to a million litres a week,” Mr Joyce said. “This is sending signals to the market that if you want to pay people $1 a litre then you’re not going to be in business for much longer because there is a vastly greater demand, an insurmountable demand, that’s going to come into that place.”

If supermarket demand continues to come at such a terrible costs to the dairy farm, it will be only a matter of time before farmers and dairy manufacturers shift their efforts to more export-friendly dry milk powders that there is an insurmountable demand for in Asia.  This will no doubt be at a cost to the Australian consumer, all because our supermarkets weren’t prepared to charge a decent price for milk, one that kept Australian farmers providing Australia.

I personally hope that milk goes up in price a little and that the farmers that we met can feel a little relief from this. But I’m sure others have other points of view… so share them today.