What price milk?

Still life with milk can and apples
Paul Cézanne, oil on canvas. Museum of Modern Art, New York.

The big supermarket chains, Coles and Woolworths, are selling their generic brand fresh full cream milk for $1 per litre. Two questions - how and why?
How can they afford to do this? Well Woolworths admit that they are only reducing their prices to be competitive and that they don't see how they can maintain this level of cost cutting. To date it is the retailers who are bearing the reduction in profit but dairy farmers are justifiably anxious about the long term implications for them if supermarket prices remain this low.
Dairy farming is no picnic since cows produce milk all day everyday and someone has to be around to see that they are milked. The raw milk is then sent off for processing. The processors sell their own brand of milk and also negotiate a price with their customers and competitors - the supermarkets. The dairy farmer is paid by the processor at a rate which clearly depends on the price the processor receives for the pasteurised milk. The processor gets a higher return on his own branded milk than on generic, supermarket brand milk so whilst lowering the price of milk in the supermarket may mean that more milk is sold overall the return to the farmer must eventually be reduced. Coles may well argue that they are not out to hurt the farmers and really only want greater transparency of farm gate pricing but at $1 per litre surely no one makes and money - transportation, refrigeration and packaging alone must eat up most of the price.

Why are Coles cutting the price of milk? Well the answer seems to be 'because they can'. In marketing terms they presumably hope that by cutting the prices on essential items customers will flock to their stores in the belief that Coles only wants what is best for their patrons. Along the way of course the shoppers will buy other items and eventually be so convinced that a Coles supermarket is a consumer paradise they will never want to shop anywhere else.

What alarms me is the power that retailers have to control what we eat - not just what we can afford to buy but what is actually available to us. Whether Coles persist with maintaining this price war or not it is worth pondering what might result if they do. One consequence might be that branded milk disappears from the supermarket altogether. In other words you buy Coles/Woolworths milk or you have to seek out milk from small independent dairies which will inevitably be more expensive. (At the moment it is possible to buy milk from independent processors but at around two and a half times the current price of Coles milk).
The two largest milk processors in Australia - National Foods and Parmalat - are not Australian companies. It probably doesn't matter all that much to them whether Australians have fresh milk in their supermarkets or not. According to Coles 50 percent of our milk production is exported and only 25 percent of total production  is fresh milk, so one consequence might well be that fresh milk disappears from the supermarket altogether and we end up only producing, if not importing, UHT milk. Anyone who has travelled in Europe will know that in many places UHT milk is much more common than fresh, refrigerated milk.

Clearly we can't rely on the moral conscience of the people who run the supermarket chains to make long term decisions about our food supply.Who has the authority to stop Coles and/or Woolworths doing whatever they want? As consumers one approach would be to boycott Coles and Woolworths and only buy branded milk.  At least this strategy would mean that the dairy farmers would continue to get a reasonable return for their product. This is easy for me to say because I can afford to pay for my principles. I don't buy fresh fruit or vegetables or meat from the supermarket and never buy anything that is a house brand but there are plenty of others who do and who welcome a reduction in a family staple with open arms.
Only buying milk from independent, locally owned processors sounds like a good idea but again only for those who can afford it and with the proviso that probably this approach won't be much help the dairy farmers who rely on contracts with the two big processors.
Given the amount of milk my children consume I have often toyed with the idea of taking control of our milk supply and buying a cow of my own but I think there are probably local council regulations which have something to say about grazing cattle in the local park.

What I don't understand is why they, that is the Federal Government, doesn't/can't do something. Isn't that what governments are for? If part of the role of government is to see that everyone has access to an education and to health care don't they also have a responsibility to ensure that everyone has access to a healthy and stable food supply?
CHOICE advocate a National Food Policy (how is it possible that we don't already have one?) in the belief that 'a more centralised approach is needed to ensure the many and varied players along the food supply chain operate in a co-ordinated and strategic manner'. Hear, hear!!!


For CHOICE see here
For Coles and their current marketing strategies see here