Agriculture Minister Barnaby Joyce has weighed into Coles and Woolworths’ $1-a-litre milk battle saying “what was a great trick for a few years will turn into a very bad business plan”.
Mr Joyce’s comments came after the Australian Competition and Consumer Commission launched action against Coles in May for its treatment of suppliers.
The ACCC alleged Coles forced smaller grocery suppliers to pay additional rebates to fund a new supply chain program. Coles has denied these claims.
Mr Joyce said he welcomed the ACCC action but said the dairy industry would eventually “sort itself out”. Coles and Woolworths slashed the price of milk to $2 for two litres four years ago, triggering the supermarket price wars that have led to strong discounting in a range of household staples, including bread, butter and eggs.
But Mr Joyce said “insurmountable demand” from Asia’s fast-growing middle class was threatening the supermarket duopoly’s business model.
He said in northern NSW alone 16,000 litres of milk a week was being flown to China, where it was fetching $7 to $12 a litre.
“They want to go up to a million litres a week,” Mr Joyce said. “This is sending signals to the market that if you want to pay people $1 a litre then you’re not going to be in business for much longer because there is a vastly greater demand, an insurmountable demand, that’s going to come into that place.”
The amount of fresh milk being flown to China is a fraction of Australia’s annual milk production, which is about 9 billion litres a year. The big dairy processors are working with farmers to lift that number through measures including fixed milk price contracts and having greater exposure to high margin products such as nutritional powders.
Still, Mr Joyce said the “smart thing” for the big supermarket chains to do would be to lift their prices and ensure more money was flowing to farmers.
“Otherwise you are … going to see more and more the conversion of milk to a dry commodity, the export of a dry commodity, to the exclusion of domestic supplies.
“What was a great trick for a few years there will turn into a very bad business plan in the long-term.”
The Productivity Commission recommended in its interim report into the cost of Australian dairy manufacturing last month that the federal government scrap “inefficient” policies such as the Renewable Energy Target, which is under review.
Mr Joyce appeared to agree with the recommendation, saying “we need to do everything in our power to make sure that we keep the cost structure down”.
He said he had no “conflict” with renewable energy such as farmers converting methane to electricity.
“What I don’t like is when people put a broad-based consumption tax on every power that every person uses because in an inelastic form of supply, and that means that if you’re poor in a regional town … they have no alternative but to be cold.
“They have no alternative but to go without. They have no alternative but to lose that spare $20 from their wallet so they can’t go down and have a cup of tea with the ladies on a Friday afternoon because we in our infinite wisdom have decided that they should pay more for power than they need to. That’s the thing that always annoys me.”
