Dairy Farmers Confront Coles Executive

AUSTRALIA - Queensland dairy farmers have confronted a Coles executive over fears that their businesses will collapse because of the milk price war started by the supermarket giant.
calendar icon 13 September 2011
clock icon 3 minute read

TheSydneyMorningHerald reports that the dairy farmers made their views known to Coles director of merchandise, John Durkan, who spoke at the Queensland Dairyfarmers Organisation (QDO) conference in Toowoomba.

The price war began when Coles dropped its generic milk price to $1 per litre, sparking a price war with rival supermarket chain Woolworths.

The price reduction couldn't have come at a worse time for Queensland farmers, who are still struggling after the December and January floods, which caused a $80 million loss from the industry, resulting in 90 per cent of farmers applying for assistance.

QDO CEO, Adrian Peake, said that, to make matters worse, the price war had taken a further $36 million from the industry.

"That's a combination of the wholesale market margin, with the movement of sales from processor brands to supermarket discounted brands," Mr Peake said.

"And then there's the knock-on effect to the farm gate."

Mr Durkan said Coles had dropped prices as a marketing move to show customers that it could be trusted for low prices.

Coles had absorbed the $75 million price tag of the decision and its supply farmers should not be worse off, he said.

But he said it would be impossible to say that the total market wasn't vulnerable.

In Queensland, Lion Dairy and Drink supplies Coles with its home-brand discounted milk and Parmalat farmers supplies Woolworths.

Neither supermarket is backing down from the price war, despite Woolworths admitting that it is not sustainable.

Mr Peake said Parmalat farmers had seen a dramatic reduction in their milk income, mainly because they are directly linked to brand sales each month.

Lion suppliers are also feeling the pinch, despite the Coles claims, as they are losing sales on their branded products such as Dairy Farmers Milk, he said.

He fears that supermarkets won't want to bear the cost of the price discount into the future and will start squeezing the processors and that would be passed down to farmers.

"Without some future security, people won't take over the family farm," Mr Roderick said.

TheSydneyMorningHerald reports that the number of dairy farms is forecast to decrease to 350 from a current 560, although part of that reduction would be because of consolidations. In 2000 there were 1545 dairy farms.

Mr Peake said that since the floods and the price war, 25 farmers have already left the industry and a further 70 could do so by the end of the year.

The Australian Competition and Consumer Commission (ACCC) announced in July that it considers there is no evidence that Coles took advantage of its substantial market power to eliminate or damage its competitors, nor prevented the entry of a person into a market.

A Senate committee is also investigating the issue and is due to report before the end of the month.

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