Farmers incensed as supermarkets cut milk price

A small price cut will cause a big whack to the Australian dairy farmer bottom line after generic milk prices were cut. Here’s why.

A five cent cut to generic milk prices by Woolworths has been rebuked by Australian Dairy Farmers, a cut that coincided with a damning report by the consumer watchdog.

Woolworths slashed the price of one litre generic milk from $1.60 to $1.55, two litre bottles from $3.10 to $3.00 and three litre bottles from $4.50 to $4.35.

Coles swiftly matched their supermarket rival while Aldi retained $1.60 pricing at the time of publication.

ADF president Ben Bennett said the move by Woolworths and Coles would place deflationary pressure on the farmgate, which was already hovering around the cost of production.

He said it was troubling the price slash coincided with the Australian Competition and Consumer Commission’s interim report into supermarket behaviour which alleged both major retailers had advertised “fake discounts.”

“These decisions are made without thinking about the broader industry implications for dairy farmers,” Mr Bennett said.

“The supermarkets hide behind comments saying ‘we pay our farmers well’ but ignore how a cut like this flows onto the wider industry at a time when dairy is in big, big trouble.

“We’re talking cost of production here: How many industries do you know that have their workers slog their guts out and get zero reward for effort at the end of the day?”

A Coles spokeswoman said: “We introduced a direct sourcing model for our own brand milk in 2019 to ensure we could provide fair, competitive and guaranteed farm gate prices to dairy farmers directly.

“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.

“Under this model, our direct sourcing dairy farmers were offered contracts at the beginning of FY24 that covered the years FY24-FY26. As a result, the Coles farm gate price did not change for the FY25 season and the details are available online as advised by the Dairy Code of Conduct.”

A Woolworths spokeswoman said: “Changes in the farmgate milk price flow directly into the price we pay processors for their finished product.

“If the milk price goes up we pay more, and when it goes down we pay less.

“We’ve reduced the price of Woolworths branded milk to pass on the savings we’re receiving from our processors.

“The ABARES report referenced by ADF attributes reduced milk production values to lower farmgate prices across the market, which were set by processors at the beginning of the season.

“The report cites reduced processor demand and export dynamics as the key drivers for lower farmgate prices. It was published three weeks before this price change.”

The five cent alteration is the first significant change to generic milk pricing in more than two years. In July 2022, both Coles and Woolworths raised the price of a one-litre carton from $1.35 to $1.60, while a two-litre bottle went from $2.60 to $3.10.

Coles and Woolworths created consternation within the Australian dairy sector back in 2011, when both supermarkets dropped the price of generic milk to $1 a litre.

The low prices remained in place for seven years, hovering around the $1.30 a litre mark during the coronavirus years when farmgate pricing surged on the back of China’s dairy produce shortage.