Milk move a drop in the bucket

Woolworth’s decision to ditch $1 a litre milk is small beer but it will put a cloud over Coles’s maiden profit report tomorrow.

Coles milk goes on the shelves at $2 for 2 litres. Paul Taylor stocking up the shelves.

Woolworths boss Brad Banducci has a fine sense of timing for his milk publicity stunt on the eve of rival Coles’s maiden profit report tomorrow.

Depending on who you speak with, Coles started dollar a litre milk back in 2011 as a big win for Australian consumers.

Some say Aldi was the price leader and it actually sells milk below $1 a litre but the move was quickly followed by Woolworths to the outrage of sections of the dairy community.

The biggest complaints came from farm areas which were already struggling like northern NSW but the concept of an effective price cap on any retail product is of course an anathema to any producer.

This means the Woolworths move will be widely applauded even if its impact on actual farm gate prices will be a fraction of the 10 cents a litre price hike by Banducci.

The theory is if you lift price controls then prices will move with costs moderated by demand and that should mean more investment in the Australian dairy industry.

At the margin it can only help.

But in round terms, Australia produces 9 billion litres of milk a year of which 3.5 billion litres is used in cheese, 2.5 billion litres in so called fresh milk and another 2.2 billion in various forms of powder.

Estimates put private label milk as high as 60 per cent of fresh milk or 1.5 billion litres.

Victoria is the biggest dairy producer in the country and at a rough estimate 100 million litres of its output goes to private label which means an extra $10 million in farmers pockets.

There are plenty of mouths to feed with that amount and it won’t cut feed costs or produce more rain. But every bit counts.

The good news is the global dairy price is increasing so farm gate prices are now over $1 a kilo of milk solids.

The Woolworths move will likely add a cent or two to that total.

But for farmers it's a step in the right direction provided they collect and not the processors led by Saputo, Fonterra and Parmalat who are all giants on the global stage.