Supermarkets under fire over dairy 'turf war'

Queensland MPs criticise supermarkets for slashing dairy prices, fearing the effect the "turf war" will have on farmers

By Brad Gardner | February 18, 2011

The dairy industry will bear the brunt of supermarkets’ decision to slash milk prices to boost sales, according to the Queensland Government.

Primary Industries Minister Tim Mulherin has rejected claims made by Woolworths and Coles that they will absorb the losses from their decision to reduce generic branded milk to $2 for two litres.

Mulherin says the cuts will drive more people toward home brand milk, allowing the supermarket giants to exert more leverage over processors of branded produce.

"Woolworths and Coles are saying that they will not be forcing the reduced price back on to the processor and the milk producer, the dairy farmer. This is really not the case. For example, under some of the contracts that dairy farmers have with Pauls the price is linked to the processor’s brand," Mulherin says.

He says he has met with the Queensland Dairymen’s Organisation to discuss the price cuts, which will be examined by a federal Senate committee.

Condamine MP Ray Hopper fears for the industry’s viability and wants the Government to ensure dairy farmers already affected by recent floods and Cyclone Yasi are not hurt by "the supermarket turf war".

The Senate inquiry will look at the impact supermarkets’ decision has had on wholesale milk prices, production, competition and whether any legislative changes are required.

South Australia Senator Nick Xenophon gained support to make Coles, Woolworths, Aldi and Franklins front the committee.

Coles was the first retailer to discount the price of its home-brand milk, leading to Woolworths, Franklins and Aldi to do the same.

According to its "fact sheet" on its website, Coles has no direct influence over farm gate prices because it buys milk from processing companies, not dairy farmers.

It claims it paid a higher price for Coles brand milk last month to ensure processors did not pass on a lower price to farmers.

"Coles increased the price it paid to milk processing companies in mid-January and is fully absorbing the cost of the lower retail price in a lower profit margin,"’ the ‘fact sheet’ claims.

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