Additive a casualty of dairy price war

Natasha Bita, Consumer editor
The Australian
June 25, 2012

THE supermarket price wars have forced one of Australia’s biggest dairy companies back to nature.

Milk from Dairy Farmers and Pura Milk will no longer be made with additives known as permeates, in what food and beverage giant Lion described yesterday as “milk’s greatest transformation in 100 years”.

Lion’s external relations director, Libby Hay, yesterday said customers did not want unnecessary processing.

“We have listened to our customers,” she said.

“We looked at our manufacturing process and realised that adding permeate was not essential, so it was an easy decision to remove it from our milk.”

Permeate is a watery by-product of milk, often mixed back into milk to ensure consistent levels of fat and protein.

The decision to omit permeate will give Dairy Farmers and Pura Milk a marketing edge in the supermarket price wars.

Branded milk products have been leaking sales since Coles and Woolworths began selling their home-brand milk for $1 a litre last year.

Independent milk producer A2 — which has never used permeates — claimed its sales had risen as a result.

Ms Hay yesterday said the price war “certainly is a challenge in the dairy space”.

“But the trend for consumers to want authentic, simple, low-processed food has been a key driver,” she said.

“Adding permeates was not an essential part of the process.”

Ms Hay said the change was based on consumer research that found nine in 10 Australians checked for additives and preservatives in food, and would choose a less-processed option if available.

A Senate inquiry into the supermarkets’ milk war last year estimated the volume of full-cream milk sold under supermarket home brands had grown from 25 per cent of the total in 2000 to 71 per cent.

Lion blamed the supermarkets’ discounting of house-brand milk for its decision to write down the value of its dairy and drinks business by $1 billion in February. It said the discounting had “caused a transfer of sales volumes from higher-margin branded products into private labels”.

Lion’s dairy and drinks division posted a 7.5 per cent fall in revenue to $675.2 million in the first quarter of this year, it announced last month.