I don’t know about you but to me no-one tells a story from the heart more powerfully than Marian MacDonald. See Sad Discovery that is Good for My Green Farm Girl
My story today comes from my heart to yours. The Australian dairy industry in crisis. It is not just the domestic milk supplying states of QLD, NSW and SA that are affected. The milk processing company Lion will endeavour to offload the 15c/litre* (see footnote) T2 milk it is paying its farmers into milk processing plants in Victoria and this will put severe downward pressure on farm gate milk prices in this state as well.
Victoria is known as the dairy state and currently 70% of milk production comes from south of the border. The current farm gate milk price in Victoria is already impacting on farm and this new pricing structure for Lion suppliers I can assure you will have serious ramifications right across Australia.
How did we get in this sorry mess you ask? Let me share what Dairy Australia has said in its In Focus publication.
“The two issues putting downward pressure on prices at present are – oversupply of milk in the Eastern states and the supermarket discounting of milk“
Now it should be as clear as the nose on your face that a milk processor like Lion could get smart and correct the oversupply issue by investing in a dryer for skim milk powder production for example which would allow it to take up the excess milk for export purposes.
On the other hand we could have another ten year drought. Don’t think anyone will be suggesting the latter option.
Just so you understand why we have an oversupply of milk in NSW, SA and QLD. Dairy farmers were given clear market signals through large incentives paid by Lion to grow their milk supply businesses. Sadly Lion’s milk sales business did not have the same growth spurt
Now to the supermarket price wars. The supermarket discounting will end when they have achieved their objective of growing the home brand share of the milk market to their targets and ultimately the target is to have only home brand milk on the shelf and the strategy is working.
Supermarket’s share of Australian drinking milk sales is now around 53% and growing. Home label brands now account for around 51% of total supermarket milk volumes, up from around 25% in 1999/2000. This result has been rapidly assisted by the current $1/litre milk discounting marketing strategy
And as you can clearly see using milk as a loss leader is making them buckets of money. See “Another strong earning performance from Coles supermarket division “
How can you help?
To assist dairy farmers you can choose to purchase branded milk products not house brands. It doesn’t matter what brand as long as it is not Woolworths label or Coles label. This will support the margins of the processors and this offers the best opportunity for farmer margins.
You can also choose to purchase milk from venues other than Coles and Woolworths.
What can Coles Do?
It is absolutely critical that they stop using milk as a loss leader
So what solution will we chose?
What are we going to do Australia? Do we change our buying habits or do we lobby Coles?
I say let’s go both barrels. Love to hear what you think
Look at these beautiful creatures Surely their milk is worth more than 16c/litre
Footnote I am yet to find a farmer who has received the mooted 15c/litre most people are getting between 11 and 13c/litre. The variation is caused by the different milk fat and protein percentages on farms