Dairy processors to get tougher when dealing with supermarkets.  

After the positive movement in the dairy industry over the last few weeks due to Woolworths’ decision to abolish $1/L milk, it seems somewhat backward that stories like the one below are being reported following last week's Australian Dairy Conference. Dairy associations across Australia have been trying to get processors to stand up to retailers for years.

However, the power imbalance, predatory pricing behaviour and threats to the continuance of contracts and/or shelf space real estate have left processors in a no-win scenario.

While QDO believes the processors could be doing more to support their farmers, it also acknowledges that the power of the major retailers is a key issue within the value chain that, with the backing of the ACCC report, continues to be swept under the carpet.

Having heavy hitter Saputo enter and expand its portfolio within Australia, may very well signify the change we need to make significant headway towards a sustainable dairy industry.

Please read the article published this week in the Weekly Times below.

Dairy processors believe they need to get tougher when dealing with powerful supermarket chains.

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Saputo chief executive Lino Saputo told the Australian Dairy Conference in Canberra last week processors had a responsibility to demand the real value of dairy products when negotiating with retailers to ensure a fair return at all stages of the value chain.

“I go back to Murray Goulburn agreeing to a contract for $1 a-litre milk,” Mr Saputo said.

“It doesn’t make any f … ing sense.

“When you think about $1.10 milk, it isn’t enough. All the 10 cents should go to the dairy farmer.

“Milk at $1.10 (a litre) doesn’t make any sense when you buy water for $3 a litre or soda pop at $4 a litre and those Powerades and Gatorades at $5 a litre.

“It doesn’t make sense when you look at all that work that goes into producing that milk and processing that milk and get it to shelves to sell it for $1 a litre.

“We have a responsibility as processors to be responsible when we are negotiating with the retailers to demand what is the real value for dairy products.”

Bega Cheese chief executive Paul van Heerwaarden said similar arguments could be made for supermarket branded cheese.

Mr van Heerwaarden said it took 10 litres of milk to manufacture a 1kg block of cheese.

“A block of cheese gets sold for $6. That’s 60 cents a litre,” he said.

“There is a need for us to properly have a conversation with the retailers and drive that (message) through.”

Mr Saputo said that if processors did not have those conversations, it “allows the retailers to believe that is the value of dairy”.

Norco chairman Greg McNamara said the dairy industry was also being degraded by supermarket chains placing drought levies on milk and asking for donations from consumers at check-outs, saying “it devalues everything that we as farmers do”.

“We do not want a generation of welfare recipients,” Mr McNamara said.

“We want a generation of farmers that are business savvy and spend the money in the right spots.”