Market forces threaten $1 bread and milk

Blair Speedy
January 31, 2013
The Australian

MARKET forces could be about to achieve what the Australian Competition & Consumer Commission, the Senate, food manufacturers and hundreds of angry dairy farmers couldn’t — stop Coles and Woolworths from saving customers money.

In just five years, the supermarket giants have gone from being characterised as rapacious beasts plundering shoppers’ purses with higher prices to rapacious beasts screwing suppliers to the wall so they can cut the very same prices.

No wonder Richard Goyder — head of Australia’s largest private-sector employer and the son of a farmer — sounded so thoroughly aggrieved yesterday when asked about the ongoing protests from suppliers and competitors over dollar-per-litre milk, first introduced by Coles two years ago.

“I just wish the facts would prevail, rather than emotions,” he said.

“The reality is that Coles has worn the margin impact of lower milk prices from day one.

“The farm gate prices are set by the processors — this is quite simply a matter of supply and demand, and if processors are prepared to sell milk to Coles, and Coles can sell it to customers at $1 a litre and make money, then that’s our prerogative.”

And in the middle of this plea for understanding, which continued for several minutes, Goyder made a comment that seemed to indicate a willingness to raise prices — in the right circumstances.

“If dairy farmers have got a problem they should take it up with the processors, and the processors can . . . sell it to us at a price that reflects what the dairy farmers can get at the farm gate,” he said.

“There are millions and millions of consumers in Australia that are happy Coles is doing what it’s doing on pricing, including milk pricing.”

Higher fruit and vegetable prices have already slowed the pace of deflation at Coles, where prices fell by 0.9 per cent during the second quarter, a marked reduction from the 3.2 per cent deflation seen in the September quarter.

“If you think back 12 months ago we had an absolute abundance of supply — in some areas pricing has moved up a bit,” Goyder said.

Now the Queensland floods could lead to even higher prices for fresh produce, as happened after the 2011 floods that wiped out significant horticulture zones in the state’s southeast.

Goyder says it’s too early to assess the likely impact on produce costs, but it’s not hard to imagine that any increase will be met with howls of protest — not by the farmers this time, but the people who buy their produce.

Meanwhile, rival Woolworths has staged the first retreat on the discounted staples battlefield, upping the price of its dollar-per-loaf bread to $1.10.

Woolies says the supplier of its white sandwich bread requested a price rise to take account of a 30 per cent increase in global wheat prices, which it allowed — but only, a spokesman added, after verifying that wheat costs had actually risen.

For Goyder’s part, he’s putting his faith in Adam Smith.

“There’s a market here, and the market works,” he said.