ABC News

Dollar milk: The numbers, the dairy processors, and the supermarket deals preventing change

Analysis ABC Rural and
James Krieg and his cow at Adelaide protest rally

Dairy farmers rallied in 2016 over farm gate prices, but a breakthrough came only this week.

ABC News: Malcolm Sutton, file photo

It took eight years for the dairy industry to convince just one supermarket to increase the price of milk, this week, by 10 cents per litre.

The meagre price rise might seem like small change, but for dairy farmers it is one of the biggest wins in a decade of lobbying.

Woolworths will now charge $2.20 for two litres of milk and $3.30 for three-litre bottles of milk, while rivals Coles and Aldi have refused to budge.

Many farmers have hated dollar milk since its inception on Australia Day 2011, but the industry has rarely been organised against it.

And until Woolworths raised the price this week, it had never convinced a supermarket to change.

For some time, individual milk processors, or factories, did not believe $1 milk was the problem, while some farmers and others in the industry believed it was.

It was a sentiment largely backed by consumer watchdog ACCC, which found $1-a-litre milk had little to do with the broader doldrums in the industry.

In 2013, Australia's then largest milk processor Murray Goulburn signed a 10-year contract with supermarket Coles to supply the product.

As a cooperative governed by a board of farmers, it agreed $1 milk would flow to supermarket shelves until at least 2023.

Then, after a spectacular fall from grace, Murray Goulburn was bought by Canadian dairy giant Saputo.

Its boss, Lino Saputo Jnr, has always said his company will honour that deal, but he is scathing of the contract.

"I go back to the days when Murray Goulburn was running the business and they signed a contract with a large retailer for $1 milk," he said this week at a national dairy conference.

"It's hard to say this, but it doesn't make any f**king sense."

The push is now on from the industry, including the processors that currently supply $1 milk to Coles, to get it, and rival supermarket Aldi, to change.

How important is $1 milk?

Video 100 years of dairying comes to an end

Rowan and Isabel Mengel on their dairy farm Rosedale. ABC News

More than half of the fresh drinking milk produced in Australia goes to $1-a-litre products, but far more milk is sent overseas.

The irony that the $1-milk debate has consumed the dairy industry and the public psyche, despite it being a drop in the ocean of total milk produced, is not lost on some farmers.

They argue it devalues a product they have worked hard to produce — sold at discount prices, and for some below the cost of production — that is hard to stomach.

And it now appears that after signing-up to the contracts to provide $1 milk, dairy processors are starting to believe their farmer suppliers and their push for change.

"When you think about $1.10 milk it still isn't enough," Mr Saputo said in Canberra this week.

"$1.10 still doesn't make sense when you can buy water at $3 a litre, when you can buy soda pop at $4 a litre, when you can buy Gatorade at $5 a litre."

Saputo continues to supply $1 milk to supermarket Coles.

Another company that supplies Coles is northern New South Wales milk cooperative Norco.

Chairman and dairy farmer Greg McNamara said it was time supermarkets stopped thinking about farmers as needing charity and started paying a sustainable price.

"The single biggest issue the industry faces is that we talk about what some retailers have done with a levy [for drought-affected farmers] and asking people to put money in a tin. It devalues everything that we do," he said.

"We do not want a generation of welfare recipients.

"We want a generation of farmers that are business savvy and spend their money in the right spots, and we've got to help the retailers come to that conclusion."

Politicians ride in

After years of struggling with clawbacks, low returns and the high costs of production, the plight of Australia's dairy farmers hit Parliament this week.

Once Woolworths announced it would increase the price of its cheap milk, Agriculture Minister David Littleproud made a rare intervention in the marketplace.

He called on shoppers to boycott Aldi and Coles for not following suit.

"Turn your back on the big German and Coles, to stick it up them, tell them to go and take a running jump and shop somewhere else," Mr Littleproud said.

The language was colourful but the message — in itself quite bizarre — was diluted when the minister acknowledged he owned shares in Woolies.

Worth about $750, he said there was no conflict and has since sold them, donating the proceeds to drought.

However it was a new policy, from the Federal Opposition, that has potential to really mix things up.

Labor wants to set the minimum price a farmer can be paid for the milk they produce.

Two decades after deregulation, it plans to unscramble the egg and, if elected, will have the ACCC report on the best way to set the floor price.

The concept sent shivers down the spines of those who recall the failures of such a scheme in the wool and grain trade.

"We've got the Federal Opposition saying that systems like a minimum milk price might be the way to go, and we know what happened in the wool industry with that system," said Paul van Heerwaarden, CEO of Bega, referencing how that scheme failed in the late 1980s.

"The question of a floor price, I've spoken to Joel Fitzgibbon on this topic, and I'm not too sure how much thought has gone into the position that has been taken."

While some welcomed the idea of a safety net, others have dismissed it as far too complex.

For those exposed to export contracts it could be harmful.

You sensed some relief the industry's desperate situation had found in the spotlight, but a few thought re-regulating the industry was light on detail.

"I think the practical challenges would be coming up with a system that is looking to consider setting a price that is above cost of production. I say, 'Whose cost of production?' the Bega chief said.

"There are lots of different costs of production across this country and different milk systems and seasonal conditions."

Still, factories and farmers are thus far unwilling to ridicule the party, which could form government in May.

So what's next?

Farmers have been happy to see one supermarket end $1 milk, and the push will remain for other supermarkets to follow suit.

But other dairy products are still being sold at supermarkets that are discounted far more than $1 milk.

So should we care about having a local dairy industry that is sustainable?

That is the argument where, this week, farmers and processors moved closer together.

As Lino Saputo Jnr put it, "If we don't have those conversations we allow the retailers to believe that is what the value is in dairy. And it's not".

For fourth-generation dairy farmer Paul Weir, enough is enough.

"They just want to treat us like paupers, like beggars. But sorry, we're too proud of what we do to actually take handouts," he said.

"I don't want any of my milk going through Coles for them to make profit out of it while I'm sitting here making a loss on it."

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