Coles is profiting from the collapse in global milk prices

John Durie
JUNE 29, 2016
THE AUSTRALIAN
Senior writer/columnist
The cut in milk prices this week from Murray Goulburn will translate into higher profits for Coles because its house brand milk is acquired on a farmgate price basis.
In effect, at present prices, Coles is making 37 cents a litre on its house brand milk while the farmer is earning just 33 cents for that same milk. Coles is making more money on the milk than the farmer.
In rough terms, there are 13 litres of milk in every kilogram of milk solid, so, with farmgate prices set at $4.33 a litre, it works out at 33 cents a litre for so called drinking milk.
This compares to the price paid in 2014 which was 52 cents a litre.
Coles pays farmgate prices plus a margin which is around 30 cents a litre which means the actual price paid by Coles in Victoria today is 63 cents for a litre of milk that sells for $1.
This works out at a profit of 37 cents a litre on $1 litre bottle milk.
The figures are approximations based on the Coles’ Victorian contract which is estimated at 90 million litres a year against the NSW contract which is for 120 million litres per annum.
The 10 year contracts which were signed in 2013 included a rise and fall clause in the contracts which meant the Coles paid more for the milk when the farmgate price was higher and less when it fell.
Coles windfall is due entirely to the collapse of the global milk price from $5,000 a tonne in 2014 to $2,900 at present.