Woolies’ milk move leaves farmers sour

Blair Speedy and Verity Edwards
March 28, 2013
The Australian

WOOLWORTHS’ plan to buy milk direct from dairy farmers so as to pay them higher prices has been slammed as a cynical marketing ploy that could ultimately increase business risk for primary producers.

Australia’s largest supermarket operator yesterday unveiled a deal with seven northern NSW dairy producers to buy their milk and sell it under a new brand with the working title of Farmers Own.

Most farmers sell their milk to milk processors, who on-sell it to retailers, but under the Woolies plan the processors will simply collect a service fee for handling the milk — an option that will allow Woolies to pay farmers more without incurring higher costs.

The move comes amid increasing consumer unease over Woolies’ and rival Coles’ treatment of suppliers, particularly dairy farmers who say the decision to cut the price of in-house brand milk to just $2 for 2 litres is forcing producers out of business.

More than 500 dairy farmers, workers and their families yesterday marched through the South Australian town of Murray Bridge calling for a national dairy summit. Barossa and Mid North Dairy Farmers Co-operative chairman Andrew Koch, a third-generation farmer, said while Woolworths appeared more concerned with its reputation than farmers’ welfare, most within the industry would be desperate enough to want to negotiate directly with the giant.

“It certainly is a marketing ploy, they’re wanting to correct the negative publicity that they’ve received from discounting milk,” he said. “But I think most farmers are that desperate that they’ll look at anything to survive.”

Mr Koch has 180 milking cows in his herd of 400 at Moculta, 70km northeast of Adelaide, and processors pay him just 38c for a litre of milk — 5c below his cost of production.

Mike Logan, executive director with industry lobby group Dairy Connect NSW, said cutting the milk processors out of the supply chain would remove a valuable risk control for farmers, whose supply contracts guaranteed minimum levels of return.

“If that role is taken away, who will absorb that risk if there’s a bad season?” he said, adding that it was hypocritical of Woolies to launch a “fair” milk brand while continuing to sell its in-house brand at $1 a litre.

“It’s not a solution — Woolworths itself has said $1-a-litre milk is not a good thing, and this doesn’t really address that.

“We need a mandatory code of conduct enforceable by the ACCC; that’s the only way we’re going to get any equity in this.”

Australian Competition & Consumer Commission chairman Rod Sims has called for an enforceable code of conduct to govern supermarkets’ dealings with suppliers, amid claims Coles and Woolies have misused their market power to demand lower prices.

Woolworths general manager of fresh food Pat McEntee conceded the plan would not solve all of the problems facing the dairy sector and said the company would continue to sell house-brand milk for $1 a litre.

“A lot of Australian families live on a budget, and price is very important to them, and we have an obligation to be very competitive and offer them value, but we also acknowledge a responsibility to ensure fair returns to farmers, and this trial is a first step to doing that,” he said.

Mr McEntee said Woolies would consider offering farmers the same risk protection they receive from existing processors as part of supply negotiations.