Shame on you Woolworths set to sell sex toys in the milk isle

Newspapers pay people whose sole job is to come up with headings for news articles that will motivate people to buy newspapers. Woolworths latest foray into innovative fast moving consumer goods must be a dream come true for them. Despite the temptation to use the tongue in cheek clever line from Brian Dodd @bushboywhotweet that Woolworths maybe ‘artificially screwing dairy’ I wont go there in the name of good taste.

What I would like to do this morning is reflect on this article in The Conversation Worried about Coles and Woolworths – then look in the mirror  and in particular these comments from the author

The greatest public concern has been the treatment of Australian farmers, particularly since the introduction of ‘one dollar per litre’ milk. So we should not be surprised that the major supermarkets have moved to stock more local produce and to set up supply arrangements that clearly benefit local farmers.

When customers complain, even retail gorilla’s listen!

Coles and Woolworths behaviour, however, highlights the underlying source of their marketing and their market power. The customers.

The two supermarket giants reached their current positions because people choose to shop at them rather than the competitors. We may rail against the closure of a small retailer when Coles or Woolworths opens up nearby, but the real cause of the closure is, well, us! As consumers, we choose to buy from Coles and Woolworths rather than the retail alternatives. We may complain but the low prices, the product selection, the convenience or whatever else, draws us in to buy at the major supermarkets and, in so doing, we slowly but surely push the retail competitors out of the market.

This is not anti-competitive; it is the very nature of competition. Businesses who best serve customers win. But when we complain, we should look in the mirror. Because it is our choices as consumers that decide who wins and who loses in the retail wars.

Put simply, Coles and Woolworths have succeeded because they are so damn good at giving us what we want!

…………. The major supermarkets are no angels. But they do respond to customers’ demands. So if you want more small grocers, you have the answer. Shop at them. But do not call on the politicians to make that decision for you.

On my previous post Coles Show Some Respect the very wise Greg Mills commented

What I found interesting about the Coles presentations was the issues management cycle slide. Coles had a ‘process’ and they stuck to it. Farmer objections where just an ‘event’ in the cycle to be dealt with. Which makes me think about what is the farmer ‘process’ to deal with these and other consumer issues. I suspect that there may not be a ‘process’ to deal with these issues by farmers and the food system, but rather the response is simply a number of events..

While I may not agree with Cole’s tactics I have learnt from this presentation and their FOCUS – Follow One Course Until Successful. I thinks it a good thing that this presentations is out there and being talked about. I hope that it gets some discussion going about how to deal with issues in the longer term.

Greg is right and I will be blunt it is not just consumers who have to take responsibility for their actions and stop expecting the government to be their white knight. Its time for farmers and Australian agriculture to convert supply chains into value chains.

Its tough out there dealing with the big 2. Is there a better current example than the latest very sad case of How private labels helped bring down Tasmania’s Tamar Valley Dairy

This company make yogurt to die for. I love it. It is divine and it appears working with Coles may have been their downfall

As Associate Professor of Marketing at Melbourne Business School Mark Ritson says in his article on Tamar Valley Dairy in BRW .

…. while around 25 per cent of all grocery sales in this country are now accounted for by private labels, in dairy categories that figure is closer to 50 per cent.

Given this proportion, it would be almost impossible for a dairy producer like Tamar Valley to grow revenues without manufacturing private labels and they aren’t alone. Almost every major branded manufacturer in Australia now makes some private label products for retailers or is trying to get a contract to start. In the case of Tamar Valley the company had clearly become extraordinarily dependent on this kind of trade supplying Coles, Woolworths and Aldi with private label yoghurts. The scale of its dependence was revealed last year when Tamar Valley’s founder and managing director, Archie Matteo, acknowledged that around 40 per cent of the dairy’s planned growth was built on a single, newly signed contract to supply Coles with private label yoghurt.

Unfortunately, manufacturing private labels is a very tricky strategic business.Private labels depend on a winning combination of prices that are 25 per cent to 30 per cent less than their branded competition but which usually return at least the same profit per unit sold to the retailer. That means that although the volumes involved in a private label supplier contract are gigantic the margins on such products are extremely tight. The nature of supermarket negotiation also means that no matter what the initial agreed supply price, there will always be future discussions on reducing it further ….

The margin pressure on private labels also means that retailers are constantly on the lookout for alternative suppliers who can offer the same quality commodity product at a lower supply price. And as private label penetration grows, more and more companies are offering their excess capacity for exactly that purpose.

The other big problem with supplying private label is the strategic schizophrenia it creates at the heart of a branded manufacturer. Tamar Valley Diary, like any other branded producer, should have had several clear strategic priorities that drove their business. They should have been focused on understanding and responding to the tastes of Australian consumers. They should have been working on product innovations to propel their Tamar Valley brand past its rivals on the shelf. And, most important, it should have been investing in and building the Tamar Valley brand to build brand equity, create differentiation and protect its market share.

The problem with private label supply is that it runs counter to all these principles. Producing private labels means manufacturing large amounts of commodity product, at the lowest possible price, without any innovation or branding considerations It also means focusing on one or two giant customers (the supermarkets) rather than the ultimate consumer for the product (you and I). As private label supply becomes an increasingly important source of revenues for a company its switches focus from branded innovation to commodity production. Its brands consequently begin to wither and fail making the company more and more dependent on private label supply to stay afloat. But, as Tamar Valley Dairy learnt this week, that’s a very fickle business to depend upon.

It would be naive to suggest that any supplier should avoid any and all private label supply. But it would be equally naive to become as dependent as Tamar Valley Dairy to sustain your business. Any company that builds their business on significant proportions of private label supply is making an enormous gamble in my opinion.

Very smart man Mart Ritson. I  would love to sit around the table with him and a group of like minded farmers

In reality just how do we deliver the change that agriculture must have? For farmers this will mean working beyond traditional boundaries and challenging the conventional thinking of primary industries and individuals. It will require a paradigm shift in thinking and a collaborative re-allocation of resources and responsibilities amongst all stakeholders in the value chain.

It will require deploying agriculture’s young people into schools to build relationships with the next generation of consumers. It will need innovative and fun ways of engaging the next generation of consumers in considering the issues affecting sustainable food and fibre production.

I have set up Farming Ahead of the Curve to do just that with a a suite of programs, training and networking opportunities that will change the way farmers and consumers interact, increasing value across all sectors.

These programs will provide a supportive environment, professional development, access to inspiring leadership, first class mentoring and training.

The legacy of these programs will allow farmers of all ages to participate in, and extract greater value from the fibre to fabric and paddock to plate supply chain.

I don’t know about you but I have had enough of others defining my future for me. I say its time to take control and get my dignity back  and farm ahead of the curve

FAHOC_Logo_Hori_RGB_WEB

Turning the anger and hurt into real outcomes

Decrease Text Size

A lot of farmers are hurt and angry (and rightly so) and feeling undervalued in a number of agricultural industries in Australia at the moment and yes if you want change you have to participate. But let’s not forget it’s how you participate that counts.

I will shortly be launching my new project Farming ahead of the Curve.

Farming Ahead of the Curve

This business recognises the pivotal need for farmers to come to the table with the solutions. It recognises we cannot survive and prosper in the farming sector in the 21st century unless we have a better a understanding of the supply chain and its constraints. This will require all of us thinking in different ways about food and fibre production and a reallocation of resources and responsibilities between stakeholders along the value chain.

We (farmers) must also rethink the way we engage with the policy makers and the politicians. Politics is the art of the possible and we must have a clear understanding of what our politicians and policy makers can achieve on our behalf and take the solutions to the table.

Like me the majority of farmers need to acquire those skills sets too.  I will be working with the experts identifying the best and the brightest and most innovative to put in front of our farmers. I know how important these skills sets are and a lack of them has contributed to the crisis the dairy industry now finds itself in and we desperately need to get our dignity back . This is part of what drives me in my thirst for knowledge and I will be sitting beside the farmers and their supply chain partners in the sessions not in front of them.

For farmers it will mean working beyond traditional boundaries, and challenging the conventional thinking of primary industries and individuals.

For consumers it will mean reflecting on their definitions of value when thinking about Australian grown products. I am 100% confident  if we work together, we can create sustainable food and fibre industries.

Here is a great example of leading the way by understanding the challenges and constraints, highlighting the problems, and most importantly putting forward the solutions.

The Land 04 Apr, 2013 04:18 PM

DR IAN LEAN ( reprinted with the permission of Dr Lean)

milk.3_serves_a_day_b

Picture Dairy Australia

DO WE WANT MILK?

THE Australian dairy industry is in crisis.

Dairy farmers are being squeezed by government policy and supermarket tactics.

Former Woolworths chief executive Roger Corbett estimated that dairy deregulation made supermarkets $670 million a year better off, at the expense of the dairy industry.

Then when Coles brought in their $1 a litre milk that cost farmers another estimated $700 million a year according to Dairy Australia.

While consumers pay less and supermarkets prosper, people who make the milk are as much as $1.5 billion a year worse off.

Deteriorating profit is part of a very long-term economic trend.

In the past 40 years dairy cattle productivity has increased three-fold.

As farmers have become more efficient, production goes up and prices come down.

Dairy producers get just 3 to 5 per cent return on their capital according to ABARES, and there is a limit to how far dairy farmers can be squeezed.

Since 1990 about 100,000 Australian farms, many of these dairy, have disappeared.

Often they’ve been consolidated into bigger operations.

But bigger isn’t necessarily better. Pasture-based dairy farms of over 800 cows aren’t as efficient as smaller enterprises.

The agricultural revolution may have been the most extraordinary achievement of the last century, as we managed to feed many more people on the planet with less starvation.

There’s still a massive challenge ahead meeting the food needs of 9 billion humans by 2050. Dairy products are nutrient-dense protein foodstuffs.

China’s emphasis on creating a dairy industry is one indication of how important these foods are for the future.

So what needs to be done?

Recognise and structurally reform for increased food prices.

Returns to farmers are not sustainable and a ‘business as usual’ model of poorer margins, producing greater efficiency is at an end.

Arable land is declining in Australia and world-wide.

Dairy farmers are less willing to risk adoption of innovation, because of the volatile pricing of milk and the lack of control they have over the pricing.

Just 5 to 10 cents a litre more for milk at the farm gate would make for a viable Australian industry.

Equal power of negotiation

This is a pivotal reform. The current process of producers negotiating a position in the market is unsustainable.

There is not a true market for milk in Australia; in some regions, including central NSW, there is only a single manufacturer for milk.

Supermarket dominance ensures little opportunity for milk manufacturers to equitably negotiate.

The flow down effect to farmers is simply devastating; NSW and Queensland farmers were paid 13c/L a litre for milk last year; a price uniquely low over 30 years.

Farmer co-operative negotiating groups need to be a strengthened through legislation to provide equality of position.

Internally consumed milk must not cost less than the international traded price

It is inequitable to sell milk on the international market for more than the local markets.

Farmers need a price that can ensure constant milk supply during drought and flood, and sufficient price for profitability without a need for truly elite performance.

Currently, even farmers performing at elite levels are not viable, if carrying modest debt.

The impact is evident in the lack of milk supply in Western Australia and Queensland.

These States are no longer meeting local supply and Victoria is even more likely to lose farms.

Supply shortages in WA have impacts on sustainable practice, as milk is now shipped across deserts.

Provide longer term milk contracts

The impact of biological cycles in agriculture is not well recognised.

Most people recognise climate fluctuation, but few would recall that if a positive economic signal is received, it takes three years to naturally increase herd numbers.

During this time, costs of growing extra cattle erode cash flow.

If the economic climate has deteriorated by the time cattle reach maturity, the potential losses are high.

In the last 3 years, milk prices have gone from near record highs to record lows.

The lack of a clear market signal means that farmers can be caught with excessive inventory when the market collapses, or are incapable of a timely response to positive price signals.

Microeconomic reform and avoidance of cross subsidy.

Reforms to labour markets, reduced costs of compliance and avoidance of subsidies to manufacturing industries will assist farmers to compete.

These reforms need to come from government policy.

Farmers are asked to meet societal goals of sustainability.

A pre-requisite for sustainability is viability of pricing that allows farmers to meet the needs to apply good stewardship to animals, land and family.

At current prices, farmers just can’t meet those demands. It is disingenuous to suggest that the current prices obtained for milk meet these needs.

The implications of current prices are negative for rural human health, animal health and the environment.

Urgent reforms, such as those suggested above, are needed to retain an Australian dairy industry.

* Dr Ian Lean is a leading authority in the medicine, nutrition and management of dairy cattle and managing director of SBScibus.