Australians have been reassured not to feel guilty about buying $1 milk in supermarkets after a two-year investigation by the consumer watchdog concluded these cheap prices had no impact on what dairy farmers earn.
The Australian Competition and Consumer Commission (ACCC) found that farmers’ earnings remain the same regardless of whether milk is sold as private label $1 per litre milk or branded milk.
But dairy farmers were disappointed the report made no recommendations about retailers setting prices at $1 a litre despite calls from farmers to take action.
The ACCC said it did not find any evidence to suggest supermarkets are trying to influence farmgate prices – the amount processors pay to suppliers – claiming that processors were solely to blame.
It instead called for the introduction of a mandatory code of conduct to improve contracting practices between dairy processors and farmers, acknowledging the great “imbalance in bargaining power”.
ACCC Commissioner Mick Keogh said dairy farmers are understandably frustrated by the declining retail price of milk.
“The price set by retailers is arbitrary and has no direct relationship to the cost of production for the supply of milk,” he said in a statement.
“In examining the impact of this on farmgate prices, however, the ACCC found almost all contracts for the supply of private label milk allows processors to pass through movements in farmgate prices to supermarkets.
Therefore, there is no direct relationship between retail private label milk prices and farmgate prices.”
He added that even if supermarkets agreed to increase the price of milk and milk producers received higher wholesale prices, then producers would still not pay farmers a cent more.
“The ACCC believes that increases in the supermarket price of private label milk are unlikely to increase the farmgate prices received by farmers unless farmers have improved bargaining power in their negotiations with processors,” Mr Keogh said.
Australian Dairy Farmers president Terry Richardson said that while it welcomed efforts to mediate contract disputes between farmers and processors, it was disappointed by the inaction when it comes to $1 milk.
“Our concern has always been that selling milk as a loss leader at the rear of the supermarket, at price points cheaper than water, is a strategy that is not in the long-term interest of this industry,” Mr Richardson said.
“Once money departs the supply chain, it is never returned. We have always strongly argued that $1 per litre milk is not sustainable long term.
“The ACCC has again highlighted the significant imbalance in bargaining power at each level of the supply chain, and ADF will work closely with all parties to ensure the code adequately protects the interests of dairy farmers.”
The consumer watchdog launched the investigation into the dairy industry in response to large reductions in milk prices imposed by two major dairy processors in April 2016.