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Legislative Council - Fifty-Second Parliament, First Session (52-1)
2011-03-09 Daily Xml
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MILK PRICING

The Hon. R.L. BROKENSHIRE (16:33): I move:

That this Council:

1. Notes with concern the impact on the dairy industry of the Coles milk pricing strategy and that—

(a) dairy farmers around the country are today seriously questioning their future having suffered through one of the worst decades in memory, including droughts, floods, price cuts and rising costs of input such as energy and feed; and

(b) unsustainable retail milk prices will, over time, compel processors to renegotiate contracts with dairy farmers and the prospect that these contracts will be below the cost of production may force many to leave the industry; and

(c) the fact that supermarkets are now selling milk cheaper than many varieties of bottled water will be the straw that finally breaks the camel's back for many dairy farmers; and

(d) the risk of other potential impacts include:

i. decreased competition as name brands are forced from the shelves; and

ii. the possible loss of fresh milk supplies to some parts of the country as local fresh milk industries become unviable.

2. Calls upon the Federal Government to:

(a) ask the ACCC to immediately undertake an investigation into the big supermarkets and milk wholesalers after recent price cuts to ensure they do not have too much market power and are not uncompetitive in their behaviour; and

(b) support the new Senate inquiry into the ongoing milk price war between the country's major supermarket chains.

This is a very important motion to me personally as a dairy farmer, to Family First, and to the state and national economy, as well, I am sure, as to my colleagues in this council.

In no comparable economy is there a supermarket duopoly with the market power equivalent to that possessed by Coles and Woolworths. All farmers have been through a terrible drought, and dairy farmers have also been through a major restructure of the industry, including deregulation, and managed to get through all those. Yet this latest price war, an initiative of Coles, puts farm gate prices and the future of dairy farming at considerable risk. We are talking here about a $10 billion value-added industry to our nation, and South Australia is an integral part of that industry.

Of all the things I have seen put before us in the years I have been in the industry, this is the most significant potential risk factor to the demise of a very good industry. My son is a fourth generation dairy farmer, and he is currently breeding his great-grandfather's cattle. I would like to think that if my son had a son or a daughter one day they would come home and breed the genetics from the cattle their great-great-grandfather initiated all those years ago. Farmers seem to have seen off the drought, and for that they should be congratulated and cheered in the cities; instead, they are now getting a kick in the teeth from Coles.

I want to explain the current price war. First of all, 'loss leader' is trading terminology that supermarkets use, using a good that everyone needs to buy, that is either hard to stockpile or is perishable, such as dairy products, and is often positioned at the back of a store so that you have to walk past a host of other products with higher margins before leaving the store. This milk price war is classic loss leader behaviour.

Seeing milk sold in supermarkets for less than the price of water does no justice to the nutritional benefits of milk and has an impact on devaluing all dairy products, and that is where this senseless initiative of Coles has huge ramifications. We have already seen major reductions in sales of private brand milk as consumers give up the motivation they had to buy private-branded milk.

Sales have rocketed for the Coles own brand, and there will be a positive injection into Coles' balance sheet. Of course, that flies in the face of Coles claiming it is helping families with their staple purchases by driving prices down. How can you be benevolent when you are profiting from the exercise? We all know that when they get 100 per cent of home-brand products on the shelves they will dominate completely and, rest assured, consumers will be paying much more than they are now. We are seeing that in Europe at the moment.

Woolworths and others have reduced their prices to match Coles' price, but they have all acknowledged that it is unsustainable. The only retailer who has said that it is not unsustainable is Coles, and their arguments are flawed and full of spin. Woolworths was smart in its marketing by giving a percentage of sales for a time to the dairy industry in Queensland, which had been affected by natural disasters. That was a welcome gesture and follows on from its drought relief efforts for farmers; in other words, at least the other duopoly player, Woolworths, does show some corporate moral values.

I do not see any corporate moral values with Coles and its initiatives, and it is not just on milk. It started on milk, last week it was bread, this week it is eggs, and they tell me it is about to occur with meat as well. Economics commentator, Steve Bartholomeusz, said recently about the Coles price war:

The slashing of the price of its home brand milk has been described as a stunt but it is part of a far broader attempt to reposition perceptions of Coles' pricing which is proving very effective in generating momentum in its sales and earnings while slowing the growth of its competitors. It has produced significant economy-wide deflation in supermarket prices.

First reports on the impact at the farm gate are that some Queensland prices are down 14¢ a litre. That has happened in just a few weeks, and I can tell you that there is no 14¢ a litre profit in the farm gate price—and it is little wonder, as they are more exposed on the liquid milk domestic market in Queensland, particularly with the contractual arrangements they have with their processor with respect to home brand sale of milk.

Coles Chairman, Ian McLeod, in a strident defence of his company's actions published in the rural mediaon 2 March, said, 'Despite claims to the contrary, Coles is not out to hurt dairy farmers by cutting retail milk prices.' I am sorry, but when you behave in a selfish and destructive manner, whether you intend harm or not, you are responsible for causing harm. Coles may say it is not out to hurt dairy farmers—fine—but we are not talking about commodities that exist in a vacuum; we are talking about an industry with family farmers in regional communities attached to them and lots of city jobs, including in our own state of South Australia.

Whether you intend harm or not, if you cause it you are responsible. It is an accepted principle in law, and I believe it is accepted in the community. Processors I also want to touch on. Mr Bartholomeusz also said:

Over several decades the dairying processing sector, and particularly the liquid milk segment of it, has been rationalised and heavily consolidated to the point where there are now only four major players. They are regarded as efficient, which means there is limited scope to offset the competitive pressures Coles is exerting on their own brands through cost cutting.

Tomorrow, with the pair that I have (about which I have spoken to minister O'Brien—and I put on the record that he was pleased that I will give evidence at the Senate inquiry tomorrow), I will highlight particularly the potential ramifications of this outrageous decision of Coles in South Australia with respect to dairy, especially because through that rationalisation we have both the Murray Bridge and Jervois plants being reviewed by their owner right at the moment.

Whilst there may be an opportunity to bring new players into the South Australian dairy industry, the problem now is that, with this cloud hanging over the head of anybody looking to expand in processing, thanks to Coles those two factories at Murray Bridge and Jervois could be mothballed and we will see lots of regional and value-added jobs lost from there.

Coles has paid Western Australian processor Brownes 5¢ a litre more for its milk during this price war. That is equivalent to an admission that the price war will hurt farmers at the farm gate. I understand that 5¢ a litre has not been passed on to farmers at the farm gate in Western Australia for reasons Mr Bartholomeusz pointed out.

I commend this and the former government. Soon after Premier Rann came in he signed off on some work being done under the former government and finished that work, so we have Liberal and Labor here both endorsing and supporting the 2010 South Australian dairy industry strategic plan, which was published soon after the Rann government came into office in 2002. This plan sees South Australia move from being an exporter of raw milk interstate to a net importer for processing in this state as manufacturing capacity is developed.

I am saying, in summary, that the government, to its credit, had a dairy plan that was going to build the industry. I want to list a few of the points the government was building with its plan. It wanted to see milk production in South Australia go from 700 million litres to 1.5 billion litres; it wanted to see the state herd go from 105,000 to 200,000 cows; it wanted to see processing capacity from 480 million to 1.6 billion litres; and it wanted to see in the plan the wholesale value of industry go from $318 million to $1 billion in South Australia.

Part of the government's dairy plan over that time was to see employment grow from 3,000 to 6,500 people and exports from $47 million to $570 million. Whilst not all those results have occurred thus far in the dairy plan, I am pleased to say that a lot of the government's dairy plan for South Australia has achieved commendable targets. Whilst the dairy plan would now be up for review, all the effort by government, agencies, farmers and industry sector associates, like the processors, is all being put at risk by this unsustainable and outrageous Coles milk war.

I want to highlight the impact this is already having on others. Baristas, the coffee sellers, have come to the dairy farmers' aid in a sense because they have now said that home brand milk does not froth as well as branded milk. We know that, because home brand milk is generally not the quality of the private brand labels. They ask whether it will take an increase in prices for latte and cappuccino for people to realise how silence now on the duopoly's actions will hit consumers in the hip pocket in the long term.

I can tell members anecdotally that I have spoken to people who are in the vendor delivery business. I have spoken to people associated with convenience stores, and they are already being hurt by what is happening with Coles. They are starting to fear for their jobs, too. So it is not only farmers: it is the truck drivers, the people in the processing plants and the printing industries, and the list goes on.

I want to highlight a few of the submissions to the Senate inquiry. As at 2pm yesterday, Coles had not made one, nor appeared to give evidence. I understand since then they have said that they will be putting forward a submission, but I think initially Coles was ignoring the power of the Senate inquiry. I can tell members that they had better not ignore the Senate inquiry because, from all sides of parliament so far, as I understand from the briefings I have had in the inquiry, senators are very concerned about not only the ramifications specifically for the dairy industry but also further ramifications for the economy.

Referring to some press comments, I note the Editor of The Australian newspaper entitled a story 'Stop Crying Over Cheap Milk' and was basically critical of dairy farmers in this debate—unfairly so, I feel. I do not believe the editor of The Australian really understands the ramifications and how tight farm gate prices are with increasing input costs day in and day out. However, they did say that there was strength in the call by the Dairy Farmers Milk Cooperative for greater transparency in the milk supply chain, and that is something I have raised previously and will raise tomorrow in my evidence to the Senate inquiry—that is, we need regulation to have transparency from paddock to plate.

The editor does seem to think that more regulation will curb competition. I do not believe that is so. Greater regulation will bring more competition, because at the moment the free market approach is only working for the monopoly players. I heard an immigrant on the radio the other day saying how hard she has been working in her corner store but, as a corner convenience store, the drawcard for her in the long hours she put in was milk and dairy products sales and, at $1 a litre at Coles, she said she is struggling to keep open the doors. This impact has occurred in just a month.

Lainie Anderson in the Sunday Mail on 27 February wrote what I thought was a very good opinion piece. It was entitled, 'You were about to save a whole 75c a litre. But you were also falling for one of the dirtiest tricks in supermarket history.' That is right because, when you look at the staple product of dairy, $3.50 for two litres of quality milk, as good as you will get anywhere in the world, is not an exorbitant price in the supermarket anyway, and this was deliberately driven down just to get people through the doors. I am sure that, with the tens of thousands of products that Coles sell, a couple of cents here and a couple of cents more has been a factor in improving its profitability at the expense of consumers.

Returning to the comments on greater transparency in the supply chain, this price war has exposed a new ally in this debate. Coles Chairman McLeod, in the statement I referred to earlier, said:

There is a lack of transparency about what the multinational milk processing companies pay Australian dairy farmers at the farm gate.

This is welcome support. I think, of course, the intent was to deflect attention from Coles to pretend the villains are multinational milk processors, but we will take it—the dairy farmers will take it—and the campaign for paddock-to-plate transparency continues. I look forward to Coles, Woolworths and others leading the way by showing their profit margins on milk.

In concluding, I have a few points. Thus far, I am extremely disappointed with the ACCC. I wrote to the ACCC asking it to inquire into predatory pricing. I think it is scared of the duopoly Coles and Woolworths, and the response I got was very pathetic—it had no substance at all—and I will be further writing to it asking for a more detailed response specific to sections of the Trade Practices Act. I also note that just less than an hour ago the ACCC has come under fire over its milk war stance, and senators in the inquiry (including Nick Xenophon, whom I congratulate for getting this particular inquiry up) have been very critical—and rightly so—of the ACCC.

We do have friends in Canberra. Nola Marino, a Liberal MP in the federal seat of Forrest in Western Australia, spoke passionately for the dairy industry. Senator Bill Heffernan from the Liberal Party (a senator I work with a lot on agricultural matters) has his head right around this and is doing what he can to get some common sense and fairness back into this milk price matter. Bob Katter, Independent member for Kennedy in North Queensland, opposed dairy deregulation and still does to this day. He has argued for union-like protection for dairy farmers.

I have mentioned Senator Nick Xenophon. I have written to Senator Ludwig, the federal minister. I am hoping to meet with him in the coming weeks with a South Australian delegation to argue again the impact this will have specifically on South Australia because, at this point of time, having spoken to minister Ludwig's dairy adviser, who I thank for giving me prompt attention, it is fair to say that minister Ludwig does not realise the specifics of South Australia as opposed to some of the other states because we are very much reliant on the domestic market. We are not like Victoria which relies mostly on the export market.

In conclusion, I am not here crying tears for farmers just for the sake of it. I am concerned about this trend of the duopoly, particularly now that Coles does not seem to have the moral values that you would expect from a corporate. Coles is prepared to pull down other industries and other businesses simply to get their bottom line up. I want to say in this conclusion that I am extremely disappointed with Wesfarmers and its CEO for the comments that he made in their half yearly report.

Wesfarmers was built by farmers for farmers and for Australia, yet now in a desperate attempt to just look at their best interests' bottom line, they are supporting this Coles initiative. In fact, I understand they hand-picked a few people from the United Kingdom. I am advised that the CEO of Coles, for his contract period, is on $22 million and I am further advised that, if he gets certain thresholds in his profit lines before his contract finishes and he goes back to the United Kingdom, he gets a $38 million bonus. Good on him for having the capacity to negotiate a contract like that and that is good for his family.

But what about all the other families? The families that came out 170 years ago like my own family from the United Kingdom—in fact, I think it was from the same country of Scotland as Mr McLeod comes from—did not have anything like Mr McLeod has been offered. Those families, together with hundreds of thousands of other families that have come from other nations to build this country, are staying here to continue building this country, and all they want is a fair go.

They want free trade but they want fair trade, and what Coles is doing here is certainly not fair trade. It is certainly not in the long-term interests of agriculture and jobs in Australia. When Mr McLeod goes back to England with his lovely big multimillion dollar contract, it will be those of us still remaining in Australia and South Australia who will be picking up the pieces and trying to rebuild industries that are decimated simply because they are driven by one thing only, and that is a bottom-line profit with no consideration for the corporate moral values that we traditionally know in Australia.

I want to finish with this point: when GJ Coles and Co. Pty Ltd was started, it was started with the good intent of creating long-term jobs and supporting other industries as they built their business. I think the founders of GJ Coles would turn over in their graves to see what Coles is now doing to decent Australian families out there who simply want a fair day's pay for a fair day's work. I commend the motion to the council.

Debate adjourned on motion of Hon. J.M. Gazzola.

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