Milk war inquiry continues

Milk war inquiry continues


Nick Xenophon

Nick Xenophon

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THE Senate inquiry into the impact of supermarket pricing decisions on the dairy industry continued today at a lively public hearing in Canberra, featuring testimony from several dairy farmers, Treasury and Department of Agriculture officials, the Australian Food and Grocery Council (AFGC) and other expert witnesses.

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THE Senate inquiry into the impact of supermarket pricing decisions on the dairy industry continued today at a lively public hearing in Canberra, featuring testimony from several dairy farmers, Treasury and Department of Agriculture officials, the Australian Food and Grocery Council (AFGC) and other expert witnesses.

Speaking to media during a break in today’s hearing, Independent South Australian Senator Nick Xenophon said the overwhelming message from the milk inquiry over the past three days was a very clear one.

Senator Xenophon said the dairy industry was on edge because of the price wars instigated by Coles selling its generic milk products for $1 a litre on January 26, which other supermarket chains followed.

He said the strategy was “completely unsustainable”.

“When Woolworths says that it is unsustainable, when dairy farmers are saying that they are at a knife’s edge when it comes to their margins and they will have to be forced off their land, then you know that this is something that will have to be dealt with as a matter of urgency,” he said.

“This government can not sit on the sidelines on this.

“It needs to act, because some of these dairy farmers literally could only have weeks, rather than months, in terms of being able to survive this current price war.”

Mr Xenophon said the government had a range of measures to attack the problem, including stronger competition laws.

He said the Australian Competition and Consumer Commission (ACCC) needed to be actively involved.

“You need to have a situation in place where there is a fair and level playing field,” he said.

“If something is being sold below cost then there needs to be action taken because it is effectively, predatory pricing.

“I challenge Coles to tell the Australian people, that selling milk, particularly in places such as Darwin and Kununurra, in WA, is not below cost.

“It is unsustainable and if we keep doing this you will end up seeing the decimation of huge sections of the Australian dairy industry.”

Liberal Senator, Bill Heffernan, also an active grain and sheep farmer, sat in on today’s hearing and in Sydney yesterday.

He said the common theme to emerge from the different witness testimony, was that the supermarket’s pricing strategy was unsustainable.

Senator Heffernan said dairy farmers, milk processors and National Foods had each given evidence saying the practice was clearly unsustainable.

He said the ACCC also appeared powerless to intervene, unless it was able to target direct acts of predatory pricing.

Senator Heffernan said an immediate solution needed to be devised, which could involve looking at the UK experience where supermarket chains implemented a similar strategy, which he said “decimated” the UK dairy industry.

He was also concerned Coles did not have an exit strategy for its pricing policy and the retail giant had put the pricing policy in place but did not know how or when it would end.

“In the mean time there are a whole lot of people who are going to get burnt,” he said.

Treasury officials, including Principal Infrastructure, Competition and Consumer Division Adviser, Brad Archer, provided testimony relating to the strategy’s impacts on competition and consumers.

Treasury’s written submission to the inquiry said dairy producers and other primary producers were concerned about the major supermarket chains’ current pricing strategies but it was not clear what the final damage bill would eventually be.

They said it was currently unclear the extent to which this conduct would continue or what its effects may be in terms of future farm gate prices for producers.

“At this time, there is no clear evidence available to suggest that the industry is not capable of maintaining prices sufficient to sustain the industry in the long-term, notwithstanding any short term fluctuations in outcomes at any particular point of the supply chain,” Treasury’s submission said.

The AFGC said price promotion and discounting was a normal part of retailing, encouraging consumers to frequent stores and purchase products.

But it said recent substantial reductions in price levels for a range of products, including milk, threatened the viability of agri-food processors which it warned, would inevitably have a flow on effect to farmers.

Speaking at today’s hearing, AFGC CEO Kate Carnell said the fabric “possibly” of a lot of rural towns in Australia was “significantly undermined” by the strategy.

“If the major employer in town is no longer there, it's pretty clear what happens to the town,” she said.

In her testimony today, Lynee Strong, of Clover Hill Dairies, said the tendering process between the supermarket giants and milk and diary processors, lacked transparency and needed to be improved.

She said the impact of the discount milk pricing would turn the current tendering process between farmers and processors, into “a race to the bottom”.

Her written submission stated that the growth of generic house brand fresh milk products in the major supermarkets had been a longstanding challenge to dairy farmer returns.

“Our community is very concerned Coles’ strategy of promoting house milk brand through aggressive price discounting will have a profound negative impact on the Australian drinking milk supply chain and on farmers in particular,” she said.

“We support the statements by Australian Dairy Farmers that selling fresh milk at these prices is not sustainable and undervalues the nutritious product that we all put so much effort into producing.

“Farmer margins and viability must not be further eroded by manoeuvrings between the retailers and processors.”

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