Price War Threatens Australian Dairy Producers

AUSTRALIA - Research by New Zealand Federated Farmers has found that Australian milk was more expensive than New Zealand milk until February's ‘milk war', which has seen prices fall to as little as AU$1 (currently NZ$1.36) per litre.
calendar icon 22 March 2011
clock icon 2 minute read

"The first casualty of war is truth," says Lachlan McKenzie, New Zealand Federated Farmers Dairy chairperson.

"In the excitement of seeing milk across the Tasman sell for as little as AU$1 (NZ$1.36) a litre, it has been overlooked that last December, that same litre of milk would have cost Australian consumers on average at least AU$1.80 (NZ$2.38).

"In December, the weighted average retail price for a litre of milk on this side of the Tasman was around NZ$1.81.

"The cheapest Australian city at that time was Perth and it would still have cost you NZ$0.27 more per litre than here. If you lived in Canberra, it would have been NZ$0.76 more.

"The only reason Australian milk is currently at prices last seen two decades ago is the battle for supermarket market share. Milk has become a classic ‘loss-leader' to get customers through the door in the same way fuel vouchers are used here.

"Last month, Australian industry sources estimated Coles was underwriting its milk to the tune of AU$300,000 to AU$400,000 per week (currently NZ$409,000 to NZ$545,000).

"While Fonterra, Tatua and Westland are farmer owned cooperatives here, across the Tasman, milk processing is dominated by Italy's Parmalat and Japan's National Foods.

"From media reports, it seems these multinational milk processors are cutting farm-gate prices in order to preserve their profit margins too.

"Dairy farmers across the Tasman are price takers and in the current milk war, they are being squeezed white. At least on this side of the Tasman every cent of revenue from our cooperatives comes back into our economy.

"In the long run milk is much cheaper here than across the Tasman. This milk war cannot go on forever either.

"If these low prices force Australian dairy farmers out of the industry, it will be the Australian consumer who'll end up paying much higher prices in the future," Mr McKenzie warned.

Australian milk prices in December quarter 2010 (eight state capitals)

Australian City Milk 2 litre whole milk (AU$) NZ$ Conversion December average AU$ bought NZ$1.32214 Milk 1 litre equivalent (AU$) NZ$ Conversion December average AU$ bought NZ$1.32214)
Perth $3.15 $4.16 $1.58 $2.08
Brisbane $3.17 $4.19 $1.59 $2.10
Adelaide $3.49 $4.61 $1.75 $2.31
Melbourne $3.62 $4.79 $1.81 $2.39
Hobart $3.66 $4.84 $1.83 $2.42
Sydney $3.73 $4.93 $1.87 $2.47
Canberra $3.89 $5.14 $1.95 $2.57
Darwin $4.14 $5.47 $2.07 $2.74
Average $3.61 $4.77 $1.80 $2.38

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