Update: milk price flow-on effects

I am feeling flush full of people power today, as if I have been personally responsible for developments in the milk price war in Western Australia.

Last week I posted the contents of my email to Coles Customer Service which outlined my discomfort with the price war.  I was pleased to receive the following reply, which not only answered some questions but provided extra background:

Good Afternoon

Thank you for your email regarding the recent price reduction of our Coles brand Milk.

Coles have an ongoing commitment to provide our customers with a great range of quality food that costs less. The recent price reduction of our Coles brand 2 and 3 litre milk is just one of the many ways that we are delivering on this commitment.

We hear and understand concerns that price reductions may adversely affect Australian farmers, however, we believe that there is no foundation to these concerns. Coles buys its milk from major dairy processing companies, not directly from dairy farmers. Coles have made the decision to absorb the costs of this price reduction and has not sought any reduced prices from the processors we buy from. In turn, our processors should not need to seek price reductions from the dairy farmers.

Additionally, the farm gate price of milk is set by dairy farmer cooperatives and dairy processors, not retailers.  The farm gate price is largely influenced by the international price of milk products.   Australia exports about half of its annual milk production and is one of the biggest dairy exporters in the world.  To put this in perspective, Coles milk sales represent less than 5% of Australia’s annual dairy production.

Coles is committed to maintaining lower milk prices for our customers, however, if there are genuine cost pressures coming through the milk supply chain, Coles has and will, continue to review them with our dairy suppliers.

Once again, thank you for taking the time to contact us. We do hope the above information has helped alleviate your concerns.

Yours sincerely

Lucinda Moses
Coles Customer Care

It’s fair to say that this reply did, in fact, alleviate some of my concerns, and I thanked Lucinda in a return email.

Imagine my surprise this morning then when I heard on ABC news Coles to pay farmers affected by ‘milk wars’. In the story, Coles says it will pay a five cents a litre price increase to the WA milk processor Brownes Dairy to ensure farmers are not affected by recent cuts to its retail milk prices:

Coles spokesman Jim Cooper says the higher price will be fairer to Western Australian dairy farmers.

“The processors there didn’t get a substantial price rise in the last round of contact negotiations,” he said.

“We felt given some of the competition that’s been happening, that extra payment was only appropriate and bring them more into line with other states.”

“We believe that this price rise should be passed through to them and should further alleviate any concerns they might have,” he said.

The Dairy Farmers Milk Co-operative chairman Ian Zandstra says Coles appears to be acknowledging the error of its ways.

“We hope this is the first step in them admitting they’ve got it wrong,” he said.

“Clearly they want to get some farmers support after the somewhat arrogant statements that surrounded their announcement of their retailer behaviour.

“Equally it’s telling us that they acknowledge they they do influence regional milk prices and the prices paid by processors for the supplies on the domestic shelf.”

It’s times like these that I feel for the Customer Service and Communications Managers whose job it is to turn last week’s message on its head and rewrite the new strategy into something that consumers will buy – literally and figuratively. And yes, that’s their job, but I’m probably more sympathetic than most because I’ve had to do it myself.

But the end result? Cheaper milk for consumers, more income for primary producers, and a clawing back of reputational damage for Coles’ owner, the still-newish-retail-kid-on-the-block: Wesfarmers.

Now I’m off to have a celebratory, extra milky, latte.

[Thank you Little Thoughts for the image.]

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