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Issue #1493      16 March 2011

Casualties of the grocery wars

Dairy farmers in Queensland are already walking off their farms as a result of the grocery wars being fought by Coles and Woolworths. Independent grocers have been dragged into the battle. In the end, the manoeuvring of the grocery monopolies for even greater market share managed to dislodge the farmers from their traditional way of life where drought, storms and floods could not.

It all started with Coles’ decision to reduce the price of its home brand milk to $1 a litre. Woolworths, Aldi, Franklins and others were obliged to fall in behind. Bread, butter, toilet paper, breakfast cereal and other products have followed. However, it’s not just bad news for farmers – consumers are being manipulated to strengthen the grip of the supermarket monopoles. Ultimately, they will join the other vanquished small players caught up in the grocery wars.

The Greens and the Coalition joined a push from South Australian Senator Nick Xenophon for a Senate inquiry into the dairy industry. The inquiry began last week. Coles submitted that it paid the going rate to processors for the milk it later sold at the discounted rate in a purchase concluded before Australia Day. In other words, it was absorbing the cost of the lower price. Woolworths said the lower retail price was not sustainable but also that the “prices set a new benchmark, and can be expected to flow back to processors and farmers as new pricing agreements are negotiated.”

Processing is another sector of the food industry dominated by monopoly players like National Foods. They have a whip hand in negotiations with farmers over the price per litre at the farm gate. Prices vary from state to state but there is a two-tier payment system across the country. In Queensland, for example, Italian food giant Parmalat pays 56-58 cents per litre for branded milk and 13 cents less for non-branded. Profits at that price are said to be as little as 2 cents a litre. Since home brand milk has been slashed to $1 a litre, sales of branded milk have slumped by 30 per cent. Milk cheques to farmers are expected to be much smaller from next month.

Australian Dairy Farmers vice-president Adrian Drury wants the Australian Competition and Consumer Commission (ACCC) to look into Coles’ and Woolworths’ pricing practices. A Senate inquiry into milk prices was also held in May 2010. It recommended the ACCC investigate milk pricing but nothing has eventuated. The ACCC cleared Coles and Woolworths of charges of predatory pricing practices or running a duopoly following previous investigations. Critics maintain that the ACCC is far too cosy with the two big retailers.

Consumer group Choice wants a national food policy and a supermarket ombudsman. That might help. Consumers may well be manipulated by lower prices on items like milk only to be squeezed with higher prices on other lines. The cheaper milk, devastating to the livelihoods of dairy farmers, might not mean a lower total on the docket after the weekly shop.

Chris Griffin, also from Australian Dairy Farmers puts it bluntly: “Dairy Farmers don’t and shouldn’t trust Coles. Neither should their customers. What Coles should do is stop being tricky,” he told The Australia Financial Review.

That is not likely to happen in the current political climate. Neo-liberalism reigns. Markets have been deregulated and “market forces” were meant to produce the best outcomes for all players. The dairy industry was deregulated in 2000 with the promise of smiles all around. Farmers have not benefitted and their situation is set to get desperate. When the supermarket monopolies move to the next big marketing strategy and milk’s shelf price soars once more, the current casualties will not be remembered in the boardrooms.  

Next article – International Women’s Day – Perth

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