Farmers raise concerns over fresh dairy price war

Major supermarkets have cut their retail milk prices. Farmers fear it could spark a new dairy war.

Australian Dairy Farmers director Ben Bennett.

Dairy farmers fear recent milk price cuts by the supermarket giants is laying the ground for a second dairy price war which could push even more producers out of the industry.

It comes after Coles and Woolworths this month dropped the prices of their home brand milk products by 5 cents per litre last month, with the prices of some independent labels also fell.

The supermarkets say the current price fluctuations are a result of regular market corrections and farmers are being paid a fair, guaranteed price under the mandatory dairy code of conduct.

But, the dairy sector has raised concerns further price reductions could result in more farmers joining the exodus of milk producers leaving the industry over the past decade in the wake of the dairy wars in which Coles and Woolworths cut its home-brand milk products to $1 per litre.

Victorian dairy farmer Ben Bennett, who is the president of Australian Dairy Farmers, said he was concerned sustained lower milk prices would further harm the sector, with both farmers and processors feeling the pinch.

“Our costs have gone up 125 per cent this season, but our farmgate prices are lower,” he said.

“At the end of the day it will come down to whether consumers want to be able to have access to Australian milk.”

Farmgate milk prices have been at record highs in recent years, but they dropped slightly this year.

Cole said its direct sourcing model for its home-brand milk gave farmers “fair, competitive and guaranteed farm gate prices”.

“Through longer-term one, two or three-year contracts, farmers are offered greater security of income so that they can invest back into their farms and make them more sustainable,” a Coles spokesperson said.

“Under this model, our direct sourcing dairy farmers were offered contracts at the beginning of FY24 that covered the years FY24-FY26.”

Woolworths said it had reduced the price of its home-brand milk “to pass on the savings we’re receiving from our milk processors”.

“Changes in the milk price flow directly into the price we pay our milk processors for our Woolworths brand milk — if the milk price goes up we pay more, and when it goes down we pay less,” a spokesperson said.

Rabobank senior dairy analyst Michael Harvey said he did not see the latest price fluctuations as a sign of another dairy price war.

He said Australian farmgate milk prices had been “disconnected” from global markets and that retail milk prices were correcting after rising significantly in recent years.

The Australian Dairy Products Federation, which represents dairy processors, says the reduction of home-brand prices by supermarkets would pressure smaller independent brands to reduce their prices as well to remain attractive to consumers.

“The aggressive promotion and price reduction of home-brand milk and other dairy products has removed significant value from the dairy chain and this has serious repercussions to the viability of our industry,” ADPF chairman John Williams said.

“While we absolutely understand the impact the cost-of-living crisis is having on Australian households, we ask retailers and consumers to consider the broader implications of home-brand price drops on Australian branded products and food production in Australia.

“The ever-growing price differential between home-brand and locally produced dairy products impacts dairy processors, dairy farmers, jobs and local economies during already challenging operating conditions.”