Australia’s second largest grocery chain, Coles, has come under criticism from farmer groups and their political representatives over its cut to milk prices. Coles has cut its milk price to $1 per litre. Farmer groups contend that Coles is making a loss at this price and therefore it is conducting a form of predatory pricing. The Farmer groups want the Australian Competition and Consumer Commission to open an inquiry into Coles’s milk pricing strategy.
In response, the managing director of Coles Supermarkets, Ian McLeod, made the following points in an opinion piece in the AFR today:
1. Most of the milk produced in Australia is exported;
2. The price of milk received at the farm gate has risen by 22% in the last year;
3. Coles has not lowered the price paid to the milk processing companies that buy the milk from the farm gate; and
4. More than one half of Australian families earn less than the average wage (the article actually says that).
The last point is good for a laugh; but the others, if they can be taken on face value make me wonder what farmer groups are complaining about. Presumably dairy farmers are worried about two things. First, that smaller grocery firms will be forced to cut their milk prices and will be forced to pass those cuts onto farmers. Second, that Coles (and its bigger competitor Woolworths) will eventually force cuts onto the milk processors who will force them onto farmers. Or, perhaps they are not worried about anything, but complain about their circumstances in a purely reflexive, Pavlovian, manner.
Their concerns would be a legitimate if farmers could not exit the industry and had no other market for their milk. But, if McLeod is correct, then Australian farmers send most of their milk to the international market. Doesn’t that mean that if domestic prices fall then farmers can sell into the international market? Not if domestic prices are a lot higher than export prices. But if domestic prices are a lot higher than international prices then why aren’t we importing milk, from New Zealand for instance?
Julia Gillard was in New Zealand last week. I hope the subject of New Zealand dairy imports into Australia was discussed extensively.