Woolworths switches off $100m drought relief milk scheme after record rainfall

Woolworths says its drought-relief milk scheme, which has raised $100m for farmers since 2018, is no longer needed.

Families such as the Wheelers — Zachary and Garry Wheeler are above on their Kandanga, Queensland, dairy farm — benefitted from Woolworths’ $100m drought relief milk scheme, which the supermarket chain will switch off by the end of June.

Woolworths is switching off its drought-relief payments to dairy farmers, saying it is no longer necessary after record rainfall throughout Australia’s key milk-processing regions.

The supermarket giant introduced a 10c-a-litre levy across its private-label milk range in 2018, raising about $100m to help farmers combat drought.

The scheme was an olive branch of sorts, coming after a tense eight years between farmers and the big supermarket chains after Coles, Woolworths and Aldi slashed the price of milk to effectively $1 a litre in 2011.

Jason McQuaid, Woolworths commercial director of dairy, said the industry had reached “an ­important turning point”, giving the supermarket chain confidence to switch off the levy by the end of the financial year.

It comes as no region in Australia is officially in drought for the first time since 2017, according the Bureau of Meteorology.

“As La Nina has delivered ­record rainfall and farmgate milk prices continue to climb, we’ve reached an important turning point and will be phasing out the drought levy ahead of the new milk year,” Mr McQuaid said. “We will continue to pay the same amount to our milk suppliers over the coming months, with farmers receiving an additional 10c for every litre of selected Woolworths milk sold until the end of June.

“We’re pleased to have aided the recovery of Australian dairy farms over the last three years and to see the industry bolstered in ­recent seasons by a return to favourable conditions.”

Rabobank’s 2022 outlook for agribusiness, released this week, revealed Australia’s dairy industry was set for its third consecutive season of “above-target earnings before interest and tax margins”.

But Rabobank senior analyst Michael Harvey said while the “foundations are in place for ­another good profit in the 2022-23 season”, there are “lingering production challenges”.

“Margin pressure has been building in the post-farmgate sector,” he said. “The Australian dairy supply chain is facing unprecedented levels of pandemic-led disruption. This has led to a jump in the cost of doing business, as well as production and distribution bottlenecks.

“Port disruptions have also caused some trade disruption in getting goods out to export markets and led to delays in getting ­access to imported materials. Broadly speaking, pandemic impacts continue to affect local and offshore food markets and disrupt consumer purchasing behaviour. Looking ahead, consumers will confront food inflation and cost-of-living pressures, which will negatively impact dairy purchases in some emerging markets.”

Additionally, Mr Harvey said “lacklustre milk supply growth” was “keeping the heat on dairy companies in terms of recruiting and retaining milk supply”.

National milk production firmed 0.7 per cent last year to 8.8 billion litres. This was one billion less than in 2014-15, according to Dairy Australia data, with the industry experiencing softer volumes after volatile farmgate prices and incomes rocked confidence.

Woolworths’s levy applied to its two and three-litre private label bottles, which are processed by Fonterra, Lactalis and Bega, ­accounting for about 5 per cent of Australia’s total milk pool.

“Dairy companies will be eager to see the decline in milk production moderate in 2022 and hoping to see a return to (modest) growth,” Mr Harvey said. “Challenges persist in the early stages of 2022. However, the industry retains a solid platform to navigate these issues.”