Are you ok with 80c Milk?


What would have been the reaction 5 years ago if Coles had set the milk price at 70 cents per litre instead of the $1 milk? I am sure everybody would have said it was impossible and retailers would have faced a far bigger backlash than they have seen.

Yet this is where we are heading by stealth. The insidious nature of a dysfunctional market forced upon the dairy industry by the retail sector still has a large sting in its tail. If the current 10 year deal between Murray Goulburn (MG) and Coles runs its course, and very few people think it won’t, the consequences will be dire.

The huge problem with the MG/Coles contract for Queensland dairy farmers is that it forms the basis for national pricing across all retailers. While this contract obviously forms part of MG’s strategic plan, there appears to be only negative effects for dairy regions relying on liquid milk sales in the domestic market.

If the price stagnates until 2024, that milk will be worth 70.1cents in 2011 dollars. That is based on a 2011-15 inflation rate of 2.3%.  If you use the 2006-15 inflation rate of 2.6%, that equates to 66.2 cents in 2011 dollars.

The average Murray Goulburn farm gate price has increased by 80-90% since 1992. This has been able to be achieved, to a large degree because of 50-100% increases in dairy export markets during that same period. How anyone could honestly think that artificially forcing a price to flatline for 13 years and not expecting to have a negative impact throughout the supply chain is beyond rational reasoning.

This highlights the difficulties for QDO over the last 5 years supplying facts and relevant data that contradicts a good retail spin story that has not been seen as helpful to the debate.