Woolworths lifts milk prices, flags new Drought Relief range

Sue Mitchell & Brad Thompson
September 20, 2018
AFR
Coles has moved quickly to match Woolworths’ milk price levy, increasing the price of three litre house brand milk from $3.00 to $3.30 until the end of 2018 to help drought affected farmers.
Coles’ move followed Woolworths’ decision overnight to raise the price of house brand three-litre milk by 30¢ to $3.30 at all stores nationwide.
Woolworths’ 30¢ levy will apply until mid-October, when the retailer plans to launch a new “Drought Relief” range of milk in Queensland, New South Wales, ACT and Victoria priced at $1.10 a litre, $2.20 for two litres and $3.30 for three litres – 10¢ a litre more than the previous price.
Woolworths will also work with its house brand milk supplier, Parmalat, who sources milk from drought affected regions, to set up a drought relief oversight committee.
This committee, which will include an independent auditor and dairy industry representation, will ensure the extra 10¢ per litre paid to suppliers is distributed to dairy farmers.
Lion became the first of the big dairy processors to react by announcing a temporary 10c-a-litre increase in the wholesale price of its Dairy Farmers and Pura branded white milk products.
The Lion levy will apply from October to milk sold to retail outlets in NSW, Victoria and Queensland with the money raised going to its farmer suppliers.
Coles was previously less enthusiastic about a milk levy, saying earlier this month that while it shared community concerns about the plight of farmers and rural communities during the drought, it believed the most effective way it could help was through grants and by matching customer donations at the checkout.
Both retailers were also wary of raising prices in unison and risk breaching competition laws which prohibit price fixing and collusion.
The Department of Agriculture and Water Resources has been asked by MInister David Littleproud to investigate how a market-wide milk levy might be applied.
Rather than wait for the department’s findings, Woolworths and now Coles have moved voluntarily to raise prices.
By acting first and not in conjunction with other retailers, Woolworths appears to have avoided running foul of competition laws.
Change of heart
Coles’ change of heart follows the appointment on Monday of a new managing director, Steven Cain. Mr Cain took the helm from John Durkan, who was an architect of Coles’ move to cut housebrand milk prices to $1 a litre on Australia Day in 2011.
“Coles and our customers have already committed almost $12 million to drought relief, including $5 million from the Coles Nurture Fund to assist drought affected farmers,” a Coles spokeswoman said on Thursday.
“To further support Australian farmers Coles will, from today until the end of the year, increase the price of our 3L own brand milk from $3.00 to $3.30 – 100 per cent of this increase will be donated to farmers affected by drought.”
For a number of years Coles has also sold a range of milk brands with a percentage of sales going to support dairy farmers in Victoria, South Australia and Western Australia.
Woolworths director of fresh food Paul Harker said: “There’s no doubt many dairy farmers are doing it tough in the face of the drought and we’re keen to support them through this difficult time.
“Many of our customers have told us they want to help and are willing to pay more for their milk to do so,” he said.
“This new range of drought relief milk will provide customers with that choice, safe in the knowledge the extra money will flow through to dairy farmers in drought affected areas.”
Woolworths applauded
Mr Harker added; “We’re clear this won’t solve the wider structural issues facing the dairy industry, given Woolworths branded milk accounts for less than five percent of Australia’s total milk production.
“The ACCC has made a number of sensible, evidence based recommendations that address the core issues impacting the dairy industry.
“This move is about easing some of the immediate pressure brought on by drought, while government and industry work through the long-term reform agenda needed to ensure future generations of dairy farmers can prosper.”
Mr Littleproud applauded Woolworths for making the first move.
“This is a great win for our dairy farmers and for people power,” he said.
Mr Littleproud said earlier this month he would facilitate a levy if retailers and processors agreed, but prime minister Scott Morrison rejected the idea as a new tax.
“I called for it, you listened and you’ve acted. This shows when everybody cooperates to do the right thing, they can get things done without government.”
Mr Littleproud said it didn’t deliver the structural reform needed in the dairy industry and he would continue to work on a mandatory code of conduct that would apply across the supply chain.
Not far enough
Dairy farmers also welcomed the move as a step in the right direction, but said it didn’t go far enough.
Kingaroy farmer Brian Tessmann, who has led the campaign for a levy as president of the Queensland Dairyfarmers’ Organisation (QDO), said a 10¢-a-litre drought levy should apply across all branded milks as well private label milk.
“We really want all white milk to get an extra 10¢ on it. We would like to see it on all the other brands in Woolworths stores and to see other supermarkets get on board as well,” he said.
“We have talked to Woolworths and Coles and others about what we wanted. Woolworths has come up with a variation on it, but hopefully it is a step in right direction and all goes back to farmers.”
QDO launched the campaign for a levy and online petition about two weeks ago, and wants the 10¢-a-litre top up for farmers to remain in place for at least a year after the drought breaks to help with recovery.
It has estimated a levy across all white milk would add about $100,000 on average to the income of dairy farmers in northern NSW and Queensland hit hardest by the drought.
Mr Tessmann said the Woolworths plan would reap nowhere near the same benefit, but had to be an improvement on existing supermarket drought initiatives estimated to be delivering as little as $50 a year to individual farmers.
The Australian Competition and Consumer Commission wrote to dairy processors this week warning of severe penalties if they blamed private label milk contracts with supermarkets for offering farmers low prices for their milk.