Retailers not wanting the Full Monty

Image courtesy of Fairfax Media

Image courtesy of Fairfax Media

By Ross McInnes, QDO Vice-President

Woolworths spokesman Steve Donohue raised an interesting point in the Senate inquiry last week when he highlighted the potential risk with taking on more direct supply.

He said, “It represents a risk for Woolworths because it is obliged to take the full volume of milk from farmers and, if it is not sold under the ‘Farmers Own label’, then it has to be sold back into the market at a lower price”.

I can fully understand his concerns, because that exposure would actually place the retailer at the same level as the farmers and processors. This frank admission perfectly articulates how retailers remain all too willing to transfer any supply chain risk down the line back onto farmers.

Supermarket executives vehemently deny that discount milk is the cause of the present malaise in the dairy industry. However, what they fail to concede are the implications and ripple effects from their discounting across the whole value in the dairy supply chain.

In other cyclical international export downturns the domestic price helped stabilisefarm-gate prices. When the domestic market has little value left in the supply chain with the retailers refusing to budge on their unsustainably low price, it is no wonder that the lower returns have been passed onto the farmers.

Unfortunately, our retailers seem hell bent on taking our industry into a domestic market death spiral by destroying any market premium. That is the responsibility they should be accepting and owning if they had any intent on giving anhonest appraisal with the inquiry, the industry and the public.

I have on several occasions tried to highlight this dilemma and urged that domestic premium to be there in the market. However, in recent times the reverse has been raised by some in the southern Australia industry. If there is no premium in the domestic market, why are we supplying milk year round to supply a market with no premium?

This is a fundamental question and debate that our industry needs to have.