DAIRY farmers have expressed dissatisfaction at the Australian Competition and Consumer Commission’s (ACCC) announcement last week that it uncovered no evidence during a recent inquiry, to prove Coles was in breach of the Competition and Consumer Act, by selling home branded milk products at $1 a litre.
ACCC Chairman, Graeme Samuel, said the major impact of the milk pricing reduction “seems to have been a reduction in the supermarkets’ profit margins on house brand milk”.
The milk war started on January 26, when Coles dropped its home branded prices to $1 a litre and other retail grocery chains, including Woolworths, follow soon after.
A Federal Senate inquiry was held to investigate the issue amid concerns for the impact ton dairy farmers.
A public was held hearing in Canberra on March 26, leading for calls to disaggregate Coles and Woolworths’ 80 percent duopoly of the Australian retail grocery market.
In taking the unusual step of commenting on the milk pricing war last week due to its high public profile, Mr Samuel said the price reductions had benefited consumers who purchased house brand milk.
“It is important to note that anti-competitive purpose is the key factor here,” Mr Samuel said.
“Price cutting, or underselling competitors, does not necessarily constitute predatory pricing.
“Businesses often legitimately reduce their prices and this is good for consumers and for competition in markets.”
But ADF Vice President, Adrian Drury, hit back saying the damage done to the dairy industry by Cole’s “unsustainable discounting” meant he could only agree with Independent Senator Nick Xenophon’s statement that the ACCC was “a toothless Chihuahua”.
Mr Drury said it was impossible for Coles to buy, transport, store and sell milk in remote areas of Australia, like the top End, for $1 a litre.
He said the consumer watch-dog was also silent on the issue of whether Coles had undertaken deceptive and misleading conduct by claiming in its “Down-Down” advertising, that the milk pricing strategy was not affecting dairy farmers.
Mr Drury said it was clear that small retailers and vendors had suffered and lost business as a result of the discounting war, with farmers also directly impacted.
He said dairy farmers “certainly do not believe that Coles has been absorbing the cost of its marketing stunt”.
“There are over 20,000 products in Coles stores and we believe Coles has been using milk as a loss leader to draw in customers while fleecing them on other products,” he said.
“The ACCC has obviously conducted a very narrow inquiry that did not look at issues around false advertising, any long-terms impacts of this cynical marketing tactic on farmers, corner stores, independent service stations and milk vendors or what the cost is to Coles at the checkout.
“The ADF is disappointed that the ACCC did not publicise its terms of reference or actually discuss this inquiry with farmers.”
Coles public affairs manager, Robert Hadler, told Rural Press his company had “fully cooperated” with the ACCC review of his company’s milk discounting campaign and was “pleased they have confirmed there was no beach of the law”.
Mr Hadler said the clear winners from the marketing campaign were customers who get “a better deal as well as milk processors and farmers who are also selling more milk”.
“That has to be a good thing,” he said.
Mr Hadler said Coles would now make a supplementary submission to the Senate Inquiry, due at the end of August, pointing out the ACCC decision and the number of farm gate price increases this year.
He said there were at least four farm gate prices increases “at last count” which showed the Coles price campaign on private label milk had had “no adverse impact on the sector”.
Mr Hadler said it was unclear what the Final Senate Committee report in November would conclude or recommend.
“An independent report by Steve Spencer from Fresh Logic shows that excess production has caused price pressure in fresh drinking milk markets and that the change over of the Woolworths private label contract from National Foods to Parmalat has caused more disruption to the Qld and NSW dairy industry than anything else,” he said.
Tasmanian Liberal Senator, Richard Colbeck, said he was not surprised by the ACCC findings.
Senator Colbeck said some would find the ACCC’s report disappointing but stressed it was “significant” that the ACCC actually conducted the pricing investigation and continued to monitor practices.
He said it was “even more significant” that the ACCC recognised the need to make public comment on the matter as “they rarely do”.
“What the ACCC has confirmed - and what Coles have denied and continue to deny - is that the discounting of generic branded milk is a part of a marketing campaign to gain market share as we have said all along,” he said.
“In one sense the attention the Senate Economics Committee has thrown on this issue ensured there is some transparency in the oversight of the market
“It is also of note that the ACCC has seen fit to extend the collective bargaining right of dairy farmers for another ten years - this is acknowledgement of the need to fairly balance power in the market.”
Senator Colbeck said it was likely the milk pricing issue would receive further attention when a new Senate Select Committee on Food Production started conducting hearings in the coming months.
The ACCC’s enquiry also found that a significant variation existed between respective costs of supply and operating margins among supermarket operators.
“As to the relationship between dairy farmers and milk processors, it is the case that some processors pay some farmers a lower farm gate price for milk sold as supermarket house brand milk”, Mr Samuel said.
“However on the evidence we’ve gathered over the last six months it seems most milk processors pay the same farm gate price to dairy farmers irrespective of whether it is intended to be sold as branded or house brand milk.
“On that front, the ACCC has recently issued a draft decision proposing to allow dairy farmers associated with Australian Dairy Farmers Ltd to continue to collectively bargain with milk processors for a further 10 years.
“This strengthens the position for farmers when negotiating with processors over milk prices.”