$1 Milk – Who benefits?

By Brian Tessmann, QDO President

The general consensus is that growth is needed for the Australian Dairy Industry, even though there remain some significant challenges. The key challenge is to restore market function to the domestic milk market. Last week saw key groups including QDO, ADF and NFF meet with Treasurer Scott Morrison, Deputy PM Barnaby Joyce and Small Business Minister Kelly O’Dwyer to press for an ‘effects test’ in competition laws to address anti-competitive practices of some big corporates, not only for dairy but for all Australian businesses. This follows the unpresented formation in October last year of an alliance of 21 business bodies comprising over 1 million small, medium and larger businesses which employ over 5 million Australians.

This year 62% of Australia’s total 9.6 billion litres milk production will go into the domestic market. In the late nineties by comparison 65% of Australia’s 12 billion litres total milk production was exported. Our population is increasing by 350-400,000 per year, so an extra 90 million litres or about 1% growth is needed every year for the domestic market.

It is highly unlikely this can be achieved with the ongoing dysfunction of the domestic milk market thathas been the operating for over half a decade now. While Coles has claimed that there has been adequate reimbursements to dairy processors in the form of higher payments, the real damage is to the 85-90% milk market that isn’t in a Coles bottle that still has to find a sustainable margin.

There appears to be a consensus that if the supermarkets have their way with $1 milk all the damaging side effects is here to stay. So if the current inflation rate of 2.3% stays for the remainder of the 10 year contract Coles has with Murray Goulburn, then producers will be expected to absorb the a 23% increase in costs if discount milk and branded milk stay relevant to each other on the shelves.

It is vital for all Australian dairy farmers and all small businesses that the changes to section 46 of the Competition and Consumer Act proposed by the Alliance group that visited Canberra last week are implemented by the Turnbull Government. The proposed amendment would mean corporations with large market power could not carry out actions that have the intent, effect or likely effect of reducing competition. After all, enhancing competition what both Labor and Liberals want, isn’t it?