SUPERMARKET powerhouse, Coles, is ignoring angry claims that the milk price war it ignited by slashing its retail values to $1 a litre has highlighted a culture of blatant anti-competive behaviour in the sector.
Coles says its marketing ploy has been applauded by consumers, drawing in extra shoppers and lifting its house brand milk sales 10 per cent or more since prices were slashed last week.
The price of a Coles brand two litre bottle of full cream milk dropped to $2, prompting matching price cuts from the company's major competitors Woolworths, Franklins and Aldi.
The price is equivalent to the bargain deals offered by discount retailers when the fresh milk market was deregulated in NSW and Queensland 11 years ago, driving regional processors into a cost cutting scramble to retain their markets.
Coles' Lite milk line also dropped to $2 last week - a 33pc discount in NSW, Queensland and Victoria and a four per cent cut in South Australia, Tasmania and Western Australia.
But speculation is rife across the retail sector that the supermarket giants are using higher fuel costs and price increases on other grocery lines to pay for the "loss leading" milk price discounts which will cost it about $30 million a year.
Farmers are furious, demanding help from the Australian Competition and Consumer Commission (ACCC) to stop what is what is widely viewed as predatory pricing behavior by the big retailers using low-priced milk eliminate smaller competitors.
NSW-based chairman of the Dairy Farmers Milk Co-operative, Ian Zandstra, is meeting with the ACCC tomorrow.
The ACCC has acknowledged widespread concern about the impact of the milk price cuts but is refusing to comment about whether it is investigating or considering action on the issue.
Generic house brand milk accounts for at least 50pc of Australia's fresh milk sales and is tipped to reach 75pc unless processors can drop prices for branded products to win back customers from cheap generic lines.
Mr Zandstra said Coles had "trashed the value of the product" and repercussions would eventually be felt by all dairy farmers, regardless of whether their milk was used to make cheese, milk powder for export, or flavoured drinking milk.
"We've already seen farmgate milk prices cut by 12 to 15pc for a lot of Queensland and NSW farmers who signed up new contracts last year," said Mr Zandstra, who's organisation negotiates supply contracts with National Foods on behalf of farmers in NSW, Queensland, Victoria and South Australia.
The generic milk war would undermine sales of branded milk lines in supermarkets, convenience stores and from milk vendors, subsequently destroying milk processing profitability and eventually squeezing dairy company payments to farmers.
"This is bad for agriculture," Mr Zandstra said.
"Generic milk makes up about 25pc of all Australian milk production, but this is a deliberate marketing move significantly grow generic sales as a ploy to promote Coles' grocery business and processors and farmers will pay the price.
"It's unsustainable to supply big volumes of low margin generic milk without having support from strong branded milk lines making profits," he said.
Mr Zandstra believed discounted generic cheese brands would be among the next fresh food products used by supermarkets to win customers.
Peak body, Australian Dairy Farmers (ADF), calculates the price war will cost Coles $30m a year - a cost it felt sure would eventually passed on in future milk price contracts with processors.
ADF pointed to Woolworths officials agreeing that "this is certainly not a sustainable price level for milk and it will inevitably lead to pressure at the farm gate".
Similar comments have been made by Franklins.
"How can Coles avoid passing the cost of this tricking marketing tactic on to consumers or dairy farmers," said ADF vice president, Chris Griffin.
Australia's leading fresh milk processor, National Foods, is currently assessing its options and declined to speculate on the likely impact on its returns from its big white milk brands Pura and Dairy Farmers.
A company spokesman said it was "a dramatic pricing change" and it would clearly affect the white milk category".
"This is a complex issue. We are working through what impact this change will have on our business," the company said.
Last month National's Japanese parent company, Kirin Holdings wrote down the value of its $3.7 billion dairy assets by $500 million because of low returns and more write downs may be likely according to analysts if dairy prices remain under pressure.