Why the milk debate isn't clear-cut

29 Mar 11 08:00AM EST
Post by Matt Levey  Matt Levey Google Plus
Young girl with several glasses of milk
Hands up if you want cheap milk? Actually, let’s try rephrasing that - hands up if you want to rip off farmers?

Many consumers could be forgiven for feeling slightly confused about which side to take in the recent “milk war” between Australia’s major supermarkets.

The debate that started with $1-a-litre milk has raised far more ifs, buts and hypothetical questions than it has clear answers. Yet some things are obvious. For households already struggling with cost-of-living pressures, cheap milk is undoubtedly a good thing. And it will stay good as long as it stays cheap.

What matters to CHOICE is what is good for consumers. We have spent years campaigning against the growing anti-competitiveness of Australia’s grocery sector – a market with some of the highest concentration and prices in the developed world.

There is something approaching 30,000 items stocked in the average large supermarket, but benevolence and altruism aren’t among them. So when we see Coles and Woolies throw their duopolistic weight around in a race to the bottom on milk, and Coles swears hand on heart that they’re absorbing all the costs, the natural question to ask is “why”?

Maybe it is about attracting more regular shoppers to large supermarkets, and away from corner stores and other smaller places where we might often buy a short-lived product like milk. If you can change people’s habits enough, you might increase your market share at the expense of the smaller guys.

Maybe the strategy is to push some of the more expensive branded products off the shelves so that the supermarkets own not only the shop but also the brands, entrenching their already strong position in relation to many suppliers.

It could even be an ingenious plot to change Australians’ dietary preferences to long-life UHT milk like the French, with its cheaper transportation and storage costs. If this is the case, we should expect the home brand line of foie gras any day now.

Amongst all the probabilities, possibilities and conspiracies, the key question for consumers, and for CHOICE as a consumer group, is why does it matter?

If milk is cheap, consumers win and competition is working, right? Well, maybe. Or perhaps it’s the difference between winning in a good way and winning like Charlie Sheen.

Some have said that supermarket milk discounting will squeeze the fat out of the supply chain, pushing the multinational processors to become more efficient. But the current Senate inquiry into milk discounting has heard very little about fat and much more about narrow margins getting narrower.

It has also been said that Australia produces far more milk than we need to meet domestic needs, so even a bit of collateral damage to farmers is hardly a threat to the dairy industry overall.

But the inquiry has also heard about the different costs of production around Australia. Under one scenario, short-term discounts could lead to a future where chilled fresh milk is trucked from Victoria up the Eastern seaboard, eventually landing consumers with higher transport costs and less fresh product.

Divergent hypotheticals aside, what has become startling clear as a result of the inquiry is the amount of things we simply don’t know about the impacts of a highly concentrated supermarket sector.

With a lack of competition has come a lack of transparency to the extent that when milk retails cheaper than Coca-Cola, no-one can figure out exactly who’s picking up the bill, now and into the future.

This is why CHOICE is arguing for the establishment of a Supermarket Ombudsman, an office that would be dedicated to promoting genuine competition throughout Australia’s grocery sector.

We don’t think the dynamics of the milk wars are unique to milk, or for that matter beer, eggs, toilet paper or any of the other 30,000 products sitting on the shelves.

Instead, we think it’s time that consumers had the confidence to know that all the supermarket prices they are paying are fair; that market power has not pushed prices artificially high to benefit suppliers, or artificially low to help major players grow even bigger. Then at least consumers could figure out what side they are on.

CHOICE will be presenting to the Senate Economics Inquiry into Milk today, 29th March, 2011.
 

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