Given the debate on low retail milk prices and dairy farmers I thought I would help out our main stream media colleagues with some headlines they might like to use:
Coles threatens farmers. “We’ll sell more milk”
Farmers plead: “Dont sell more of our product”
Increasing milk sales to hurt dairy farmers
They all sound a bit silly don’t they. But this is the other side of the Coles retail milk debate. Low retail prices will increase retail sales, both overall and from Coles. This will hurt Coles competitors, particularly the dairy companies who market branded milk in competition with Coles’ home-brand product. But low prices and increased retail sales will help producers who supply the inputs. For milk, the main producers are the dairy farmers. There will be more milk sold and that means retailers have to convince farmers to supply more milk. You cannot do that by harming the farmers.
Don’t believe me? Well, let’s take another example that is close to home. China is booming by selling a lot of manufactured goods cheaply. Those goods use inputs like iron ore and coal (through power and smelting). China’s ‘low price’ policy has been a huge boon to those input producers like BHPB and Rio. It has been a huge benefit to the countries that produce the inputs – like Australia. It has hurt China’s competitors but helped their suppliers.
Now Coles ain’t China. And maybe Coles will not be able to maintain the low price for the long term, particularly as the farm gate price of milk starts to move higher as the quantity of milk sold at the retail level increases. But if the low price is maintained, then our dairy farmers will benefit.