ADF Challenges Coles over Price Cut

AUSTRALIA - The Australian Dairy Farmers (ADF) have challenged Coles supermarkets to prove that the recent milk price cuts will not affect farm gate milk prices for Australian dairy farmers.
calendar icon 2 February 2011
clock icon 2 minute read

The supermarket chain last week announced a cut of up to 33 per cent in fresh milk prices.

Coles Merchandise Director John Durkan said: “Since June last year Coles has cut prices on a range of products with a focus on what customers buy the most and we intend to keep investing in bringing our customers great value in 2011. Because we all buy milk, this price cut will offer significant savings for customers proving that quality food really does cost less at Coles.

"We are lowering the price of the family shopping basket because we know that is what our customers want the most."

ADF Vice President Chris Griffin said: "Coles is selling milk at an unsustainable price and it is not only dairy farmers who believe this is the case."

ADF said that in the Herald Sun on Thursday 27 January Woolworths said: "we don’t feel this is a sustainable outcome for the dairy industry."

On the same day in the Courier Mail Woolworths also said: "This is certainly not a sustainable price level for milk and it will inevitably lead to pressure at the farm gate."

In the Australian newspaper on Friday 28 January Franklin’s Managing Director Roni Perlov is quoted as acknowledging the prices were ‘unsustainable’, ADF said.

The ADF has calculated that the cost to Coles of this marketing tactic if, as they claim, they do not pass on the price cut will be over $30 million per annum.

It defies logic to think that Coles will ‘fully absorb’ this amount of money. It is inevitable that it will be passed on to either consumers through higher prices on other products in Coles’ stores or to dairy farmers through lower prices for their milk.

In light of all these major industry players saying the pricing is unsustainable the ADF challenges Coles to show why they alone believe it is sustainable.

ADF Vice President, Chris Griffin, asks Coles: "Why do they alone believe they can absorb the cost?"

Home brand milk represents milk volume through-put for milk processors, however profits are derived from their branded milk. Coles’ aggressive promotion of home brand milk at the expense of the diverse range of branded milk products represents a threat not only to consumer choice but to the dairy supply chain. Dairy farmers will feel the squeeze as milk processors lose profits.

"How can Coles avoid passing the cost of this tricky marketing tactic on to consumers or dairy farmers?

"Which is it to be? Slugging consumers through higher prices on other products in Coles’ stores or gouging dairy farmers by paying them even less for their milk."

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