Next time you drink a glass of cheap milk, think about the consequences.
Next time you drink a glass of cheap milk, think about the consequences.

Price war milks shoppers

Fresh milk prices seem to be coming down. Sounds good, doesn’t it? Well, as always, the devil is in the detail.

For starters, if fresh milk prices can come down now, why didn’t they come down sooner? Lower prices today must mean we were being gouged when prices were higher.

Naturally, it’s good the major supermarket chains may be listening to their customers on milk prices, but why haven’t they listened before?

The cynical customer will ask if the major supermarket chains are listening to customers on other products.

We see that petrol prices have shot up opportunistically despite the strong Aussie dollar and the Singapore benchmark price we use to calculate local prices having remained consistent in recent weeks.

So petrol prices have jumped and the major retailers have been able to increase their average retail profits during the past year.

Now Coles and Woolworths are quick to say that the cheaper milk is not being paid for by higher petrol prices. From a company perspective any loss of revenue on milk can easily be offset by consumers being gouged on petrol.

That’s obviously a game that Coles and Woolworths could play. Publicise cheaper milk to get customers through the door and once they are there, they will buy other products at inflated prices.

This is the old “loss leader” gimmick. Get customers hooked by a super special and then fleece them on other products. These days a loss leader strategy by large companies may have serious legal implications. Under a law enacted by Federal Parliament, a company having a substantial market share cannot sell a product below the company’s cost for a sustained period if that has an anti-competitive purpose like trying to drive out a competitor.

Are Coles and Woolworths selling milk below cost? Well, we don’t know and that’s why our competition regulator, the ACCC, needs to ask them some questions.

Now, there is a more worrying side to the lower milk prices.

We know that if it’s the major supermarket chains funding the lower prices there is the danger consumers could get gouged on other products.

The real concern is if the lower prices end up being funded by the dairy farmers. If lower fresh milk prices means that dairy farmers are forced to take a further cut in the farmgate price of milk, then we will see more of them leave their farms.

That’s the scariest part of what‘s happening with fresh milk prices. In many countries, consumers are forced to buy long life milk rather than fresh milk.

This change has even been pushed by overseas supermarket chains as long life milk means lower handling costs and higher profit margins for the

supermarkets. So in the rush to cheaper fresh milk prices, let’s not forget our dairy farmers because if we lose them we pay a higher price by losing our world-class access to fresh milk.

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