ANY lift in dollar-a-litre milk was unlikely to benefit dairy farmers - rather the extra profit would be soaked up by supermarkets and processors, Australia’s competition watchdog has found.
Attempting to change the measly price tag on generic milk in supermarkets that producers find heartbreaking may not be the way forward in improving the raw deal they are getting at the farmgate.
Instead, the Australian Competition and Consumer Commission (ACCC) is looking to address the weak bargaining power of farmers and put pressure on processors to rectify unfair supply contracts.
ACCC agriculture commissioner Mick Keogh said if processors were forced to absorb more of the risk, it might influence their ability and desire to bid a low price for supermarket generic milk label contracts.
In its eye-opening interim report following a year-long look at the dairy industry, the ACCC concluded farmers earn the same regardless of whether their milk ends up in generic bottles or as more expensive branded milk.
It did find the major supermarkets have leveraged their buying power to lower wholesale processing costs and capture profits from processors, the benefits of which they mostly transferred to the consumer.
However, it concluded strengthening the bargaining power of farmers, and limiting the extent to which processors can simply transfer risk onto them, appears the best solution.
As such, it has recommended a mandatory code of conduct, which would include ensuring all contracts between farmers and processors be written and signed, simplified and not include terms which unfairly restrict switching processors.
An independent arbitrator would be set up as a dispute resolution mechanism.
Producer groups have expressed some concern with the analysis, arguing the bottom line is $1-a-litre milk is not sustainable.
Australian Dairyfarmers chief executive officer David Inall said the rock bottom price for milk extracts value from the supply chain and it was only logical that would eventually find its way back to the producer.
Mr Keogh agreed but said the better move was to address the imbalance in negotiating power between producer and processor, particularly given the lack of evidence of a direct impact to farmers from dollar-a-litre milk.
Markets where dollar-a-litre milk was the larger proportion of total consumption were also where farmers were receiving the highest prices - for example, tropical North Queensland, he said.
“Further, processors compete hard to secure dollar-a-litre contracts,” Mr Keogh said.
“However, when we looked at processor margins, there was no doubt it had squeezed profits.
“This occurs in two ways - processors take on these contracts at a marginal profit level and (generic label milk) also competes with their own branded milk.”
Producer groups were extremely pleased to see acknowledgment of the farmers’ weak bargaining position.
Mr Inall said the recent voluntary code of practice, to which 95 per cent of milk supply had signed on to across both the producer and processor sectors, had opened the conversation to improve transparency and balance.
A mandatory code is seen as the next step.
NSW Dairy Connect farmer chairman Graham Forbes said emotions ran strong over $1-a-litre milk but “in reality it is a symptom of the problem rather than the problem itself.”
Addressing unfair supply agreements and strengthening producer’s collective bargaining ability was the pathway to put a stop to the devastating “ratcheting down of prices coming back to the farmer,” he said.
“These recommendations will put pressure on the way dollar-a-litre milk has occurred and hopefully see the end of the downward spiral,” he said.
The ACCC’s report makes eight recommendations and is seeking feedback by the end of January before releasing a final report in April 2018.