THE dairy industry is dubious over the supermarket giant's motivation to slash milk prices, writes ADRIAN DRURY
Coles managing director Ian McLeod has sought to present the supermarket giant's recent decision to savagely cut retail drinking milk prices as a move aimed at protecting the interests of both Australian consumers and local dairy farmers.
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Mr McLeod may hope that Australians will accept his "just trust us" approach, but on this issue the dairy industry has significant doubts about Coles' motives or the likely outcome.
He says Australian farmgate prices for milk are underpinned by global milk prices and that Coles expects rising global prices will flow through to all Australian farmers.
His understanding of the dairy industry and its reality may benefit from a closer read of the Dairy Australia Situation and Outlook reports that he seems to rely on.
It needs to be made clear that for a number of dairying regions - for example, Queensland, northern NSW and Western Australia - retail sales of drinking milk are the key market and farmgate price drivers.
The Situation and Outlook report does say that farmgate prices - particularly in Victoria and Tasmania, where the majority of milk is used in the manufacture of dairy products, such as cheese and milk powders - are closely aligned to returns from these exported products.
However, returns for drinking milk and fresh dairy products, such as yoghurt, are less directly affected by the returns for internationally traded commodities.
Coles' decision and its flow-on effects will have major implications for dairy farming families in these regions and also those supplying UHT and route trade suppliers in other regions.
Mr McLeod quotes recent increases in farmgate prices of 22 per cent and suggests this may alleviate farmers' concerns over future returns.
While we are not sure where Mr McLeod sourced this figure, he appears to be attempting to quote the price increase for Victorian farmers who export dairy products - those least directly associated with the domestic drinking milk market - to support his case.
This is very misleading and an examination of farmgate returns in drinking milk regions shows a much-less rosy picture (and one that is becoming more clouded by Coles' unnecessary and ill-conceived pricing strategy).
Mr McLeod fails to mention that milk prices to farmers have dropped by more than 10 per cent in NSW and 15 per cent in Queensland in the past 12 months.
This includes farmers who supply milk which goes into Coles' supermarket branded milk.
The price on the retail shelf is linked to what farmers ultimately get paid.
Many farmers in Queensland will see their milk cheques drop next month as a direct result of the Coles' cut-throat price discount campaign.
Rather than defending farmer interests Coles' move can more reasonably be explained as an attempt to gain market share, while putting pressure on other retailers and product suppliers.
Some may accept Coles as a pricing white knight, Mr McLeod said, but the dairy industry, for one, doesn't buy it.
- Adrian Drury is vice-president of Australian Dairy Farmers Limited