Dollar milk: 10 years on from supermarket dairy discount decision
It’s 10 years since January 26, 2011, which changed the course of Australia’s dairy industry. We take a look at how it has changed in the decade since dollar-a-litre milk was introduced.
AS FAR as Australia Day developments go, it was as welcome as a rainy day at Bondi or blowflies on a pavlova.
Well, it was as far as dairy farmers were concerned.
On the national day a decade ago, Coles managing director Ian McLeod fired the starting pistol on the dollar-a-litre decade.
The wily Scottish executive was tasked with turning Australia’s silver medallist supermarket into a rolled gold winner like Dawn Fraser or Ian Thorpe.
And to make a splash like Dawn or Thorpie, Mr McLeod took a very British method of switching Australians from Coles to Woolworths — two dollars for two litres of generic brand milk.
Mr McLeod had witnessed the power of loss leader products such as discounted milk in his role as an executive for UK supermarket chain Asda (ironically an acronym for Associated Dairies).
Cheaper milk at Asda lead to a price war against the UK’s market leaders Tesco, Sainsburys and Morrisons.
The same occurred in Australia. Woolworths and Aldi matched Coles within days, all locking in the dollar-a-litre price for their generic brands and baking in consumer expectations.
Then Australian Dairy Farmers vice president Chris Griffin told The Weekly Times a decade ago that he was “bloody angry” about the price push.
In 2021, he says the damage to the sector has been sustained.
“I remember the day vividly. I was at my daughter’s house celebrating Australia Day and got phone call from Peter Stahle, who was executive director of the Australian Dairy Products Federation at the time,” he said. “Things really hit the fan. The days following that Australia Day really put a spotlight on how the Australian dairy sector was tracking,” Mr Griffin said.
Mr Griffin said while Coles may have initially attracted bargain hunters, the supermarket’s brand was sullied among dairy farmers and regional Australia more broadly.
“Coles were culpable for the overall role of retail in devaluing milk. Others followed but they led. Prior to dollar a litre milk, Coles would have had 90 per cent of my supermarket custom and it went to zero and remains that way even now.”
United Dairyfarmers of Victoria president Paul Mumford said the dollar-a-litre marketing had been a key part of the decade-long degeneration of the dairy sector, not just in the Garden State but nationwide.
“That decision on Australia Day in 2011 has done real, long-term damage to dairy farming in Victoria and across Australia,” the Gippsland-based farmer said.
“The numbers speak for themselves — a quarter of all Victorian dairy farmers leaving the industry in the past four or so years, a shrinking national milk pool.
“Yes, there have been other factors — the biggest being the 2016 price clawback. But dollar-a-litre degraded the price expectations of shoppers. They were told that milk was worth less than bottled water and even at $1.20 (a litre) 10 years down the track, that’s still the message they’re getting from Coles, Woolworths and Aldi.”
The Weekly Times revealed last month that a quarter of all Victorian dairy farmers left the sector in the past four years.
The 2016 farmgate clawback by Murray Goulburn and Fonterra was a seminal moment for the sector during the 2010s, but Australian Dairy Farmers president Terry Richardson said dollar-a-litre has been a contributing factor to the industry’s woes.
“Any farmer who leaves the dairy industry would have their own reasoning for that decision, whether the cost of production is becoming too high, or it is a good time to sell, or they want to retire,” he said.
“But there is no doubt that the discount dairy pricing scheme has had an impact on how farmers feel about the worth of their products.
“What we really want is an end to discount dairy products, but in the short-term ADF has a policy to increase the price of private label milk to $1.50 per litre, with farmers seeing a benefit from this increase.”
While $1.50 may be the aim of the Australian dairy sector, grassroots advocacy at least killed the dollar-a-litre hoodoo.
In February 2019, Queensland farmer Damien Tessmann made headlines with a social media call to Coles to raise the generic price from a dollar a litre.
His Facebook plea was relayed on airwaves and newsprint across the country and within weeks, all three big supermarket chains bumped up the house brand figure to $1.10 a litre.
Sustained pressure from dairy lobby leaders throughout 2019 resulted in another 10c rise to $1.20 a litre.
Taking into account an average inflation rate of 1.9 per annum during the 2010s, a dollar in 2011 is now valued at $1.19 — only a cent off the current generic asking price.
Mr Tessmann told The Weekly Times that like the ADF, $1.50 a litre would be ideal.
“It’s had a huge impact here in Queensland as well as NSW. Anyone connected to domestic fresh milk has been hugely frustrated over the past decade,” the Kingaroy farmer said.
“$1.50 a litre is reasonable. It’s still lower than most bottled water products on the market.”
A Woolworths spokeswoman said the supermarket would continue to “offer our customers a wide range of milk at different prices to suit different household budgets”.
“Following an in-depth inquiry, the ACCC found that reduced dairy retail prices did not have a direct observable impact on farm numbers, output or profitability,” the spokeswoman said.
“It published a number of recommendations to improve the bargaining power of farmers in farmgate pricing negotiations with dairy processors.
“Since 2018, we’ve delivered an extra $68 million to more than 450 Australian dairy farmers through our 10 cent per litre milk levy. In consultation with the industry, we’ve also established a $5 million Dairy Innovation Fund, offering Australian dairy farmers grants up to $100,000 for on-farm improvements.”
A Coles spokesman said: “In June 2019, Coles began sourcing milk direct from farmers in Victoria and southern and central NSW, which allows us to deal directly with farmers rather than through a processor.
“In 2020, the model was also rolled out to SA and WA, bringing the total number of Australian farms supplying milk to Coles under direct contracting arrangements to almost 60, with Coles purchasing more than five million litres of Australian fresh white milk for customers each week across the country.
An Aldi representative said: “(Aldi’s) fresh milk levy, which has been in place since March 2019, has seen Aldi collecting and passing on in full, 10 cents per litre on all two-litre and three-litre Aldi branded fresh milk pro ducts sold.
“Since introducing the levy, we have collected more than $11.7 million, which has already been passed on to Australian dairy farmers.”
A silver lining from the dollar-a-litre cloud, Mr Griffin said, has been the power of dairy farmer advocacy.
He points to the implementation of the mandatory dairy code of conduct and further moves at a federal level to redress the farmer-retailer imbalance.
“Dollar a litre was in for years but farmers and farm leaders kept at the issue, raised awareness and Australians got on board. We eventually got rid of dollar a litre but it took time.”
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