Season lays bare dairy supply chain flaws

Milk shortage problem existed regardless of drought


Editorial
Aa

Supermarkets increasingly can't stock some of their lines of fresh milk and in regional NSW, some are struggling to get fresh milk altogether.

Aa

The numbers in the March Dairy Quarterly from Rabobank help to paint a stark picture of, and underline the fast changing dairy market dynamics.

Supermarkets increasingly can't stock some of their lines of fresh milk and in regional NSW, some are struggling to get fresh milk altogether.

According to Rabo's outlook, we're only at the start of the supply squeeze, with Australian collection estimates set for double-digit declines through this year.

Dairy in Australia now has three speeds: export (including some fresh milk going to high value markets), the high volume fresh milk market (mainly supermarket house brands), and then the smaller fresh milk markets, such as country town retailers, which are now being left high and dry as supply is squeezed.

In the fresh milk game, the big processors and supermarkets are funneling increasingly limited volumes into their house brand lines, further consolidating the options on the shelf and furthering the damage done by the dollar a litre fresh milk price wars, which began in 2007.

The supply squeeze is just the latest turn of the screw.

The additional 10c/l from the supermarkets was too little too late - and within that, The Land also understands that, depending on the contract, some farmers are only seeing as little as 2 cents of the 10c/L increase.

This is still a farmgate price issue. The smaller private brands were already establishing before the drought.

Those brands arose because the producers who started them were underpaid by the big supermarkets.

Despite their milk now costing more at retail, it still sells - and those companies have been able to keep milking in spite of the drought.

They're the ones the regional supermarkets are now turning to for product. Little Big Dairy at Dubbo says it has increased from selling 30,000L of fresh milk a week in 2018 to 50,000L a week this year.

This is because it is retailing at a price that allows their suppliers to feed their cows - despite the drought.

So as the suppliers to the big supermarket contracts are forced dry-off more cows because their paltry $1.10/L isn't enough to pay for feed, it seems a tad ironic that we could see some of these smaller, private labels consolidate their position as important players in the domestic market.

Aa

From the front page

Sponsored by