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Issue #1588      April 10, 2013

Dairy farmers still in monopoly trap

Internal documents obtained by The Australian Financial Review show Woolworths is working on a new “Farmers Own” brand of milk. It will be non-homogenised so customers will have to shake the bottle like they did in the old days before dairy deregulation and $1 per litre home brands at the big supermarkets. The marketing ploy is designed to tackle customer concern at the treatment of farmers by the dominant food retailers but, regardless of the packaging, farm gate prices for milk and farmers’ future survival will remain at the whim of big corporate interests.

At the moment, farmers go cap in hand to processing monopolies like Italian-owned Parmalat or Japanese-owned Lion for a price for their milk. The processors blame Coles and Woolies for the downward pressure on prices by launching their $1 a litre home brand war in January 2011. At a Senate inquiry held later that year, the big two supermarkets stated that they were absorbing a loss on the cut-price milk and that it should be business as usual for other industry players. Graeme Samuel, chairman of the Australian Competition and Consumer Commission (ACCC) at the time, agreed with them. The ACCC has shown little willingness to tackle the market manipulating behaviour of Coles and Woolies.

However, when Woolworths’ director of corporate and public affairs, Andrew Hall, was quoted in the press last week, he was clearly pitching to public concern about the plight of dairy farmers. “We have always believed that the drop to $1 a litre is not sustainable for the dairy industry and not good for dairy farmers,” he said. Woolworths’ supposed answer to this problem is to source some milk directly from farmers – presumably for a better price, though this isn’t discussed – and for Woolies to contract the processing out. The assumption is that the big retailer would be able to squeeze a better price from processors than the farmers can.

The farmers’ fear is that prices might remain the same or worsen and that the direct sale might involve more complicated arrangements as occurred with a similar venture with the Tesco supermarket chain in the UK. The directly sourced milk would only supply a niche range of dairy products and not greatly affect the current, miserable status quo. The National Farmers Federation supports the proposal. The Queensland Dairyfarmers Organisation says the idea should be explored. Coles and Woolies are both reported to be in discussions with dairy farmers about their plans.

The move is obviously more about marketing than concern for struggling dairy farmers. The documents obtained by the Financial Review detail responses from a customer group to aspects of the proposal. Woolies concluded from their research that if the milk were given the home brand, it might suggest Woolworths has simply absorbed another brand and extended its worryingly long reach.

If the “Farmers Own” brand was said to be “exclusive to Woolworths” it “ ... implies that WW will draw up new contracts in the best interests of farmers” and “gone to the farm to give them a better deal than what Coles would do,” as the research paper put it.

The scheme might be too transparent and backfire though millions of dollars spent on advertising could succeed in duping the pubic. In any event, dairy farmers are not looking to Coles or Woolies to save their farms. NSW Farmers chief Matt Brand says farmers in his state are planning to set up their own processing plants and sell their milk locally. Doubtless the monopolies will be moving to head off any such cooperative challenge. Their servants worked hard to achieve the current “free” market environment where big interests make even bigger fortunes on the back of small farmers.

The current parlous state of affairs is the inevitable consequence of dairy deregulation nationwide in 2000. A relatively stable industry was thrown into chaos that was only slightly mitigated by the Dairy Adjustment Authority until 2008. Now the gloves are off. Brands and marketing might conceal the reality of capitalism taken to its ultimate consequences from customers doing their weekly shopping but they won’t fool the many dairy farmers facing bankruptcy.   

Next article – Prison overcrowding symptom of a wider malaise

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