“Dairy farmers in the key drinking milk markets of Queensland, northern NSW and Western Australia are being hit hard by the unsustainable pricing of drinking milk at $1 per litre,” ADF President Chris Griffin said.

Appearing before the Senate Economics References Committee Inquiry Mr Griffin gave evidence of the impacts of supermarket price decisions on the dairy industry.

In the last eight months dairy farmers have had to contend with the uncertainty created by Coles’ cut throat discounting of fresh milk.

Farmers are under pressure and they are leaving the industry due to their doubt about the long‐term sustainability of their farms at these prices.

“This is leading to a lack of investment in the industry in the drinking milk states at a time when it is vital that farmers develop their farms to meet anticipated future demand,” Mr Griffin said.

The dairy industry has done modelling on what the potential impact of the discounting is if it continues.

This national modelling outlines a potential annual loss of $44 million from the value chain due to the shift to home brand products. This scenario would lead to a drop of 2 cents per litre in the farmgate price. For the vast majority of northern NSW and Queensland dairy farmers this would result in the loss of any profit margin on their milk.

“The price cuts are unsustainable and the plain fact is milk priced at $1 per litre does not bring in enough money to support farmers, processors and retailers. The evidence shows it and Coles knows it,” Mr Griffin said.

Mr Griffin said, “This is why the ADF is calling on the Federal Parliament to support industry’s recommendation for an enforceable and mandatory Code of Conduct for supermarkets that covers the entire value chain, from farmer to retailer.”

The industry also calls for a Supermarket Commissioner or Ombudsman to be established to investigate complaints and enforce the new code.

‘We look forward to the Senate Economic References Committee report to provide direction to the Government on a resolution to the unsustainable pricing and unfair practices of Coles,’ Mr Griffin said.

Media Contact:

Media Contact:

Chris Griffin, ADF President

M: 0402 846 239

Coles has continually tried to claim that dairy farmers are not being impacted by the pricing of milk at an unsustainable $1 per litre. This is simply not true. The evidence is in and the Coles’ led milk price war is directly impacting dairy farmers. There is now no doubt that Coles’ gain is farmers’ pain.

Dairy farmers in the key drinking milk markets of Queensland, northern NSW and Western Australia are being hit hard. In its submission to the Senate inquiry into milk prices ADF shows how.

In the last seven months dairy farmers have had to contend with the uncertainty created by Coles’ cut throat discounting of fresh milk. In Queensland alone over twenty farmers have left the industry, since the price war started, with many citing the impacts and poor outlook due to the supermarket milk price war as a key contributing factor in deciding to exit the industry.

In Queensland one group of farmers has been losing thousands of dollars a month due to the increase in sales of home brand milk, which is directly related to Coles’ unsustainable price discounting. The cumulative impact up until the end of July for this group of 185 Queensland dairy farmers has been a loss of more than $767,000. If this impact continues the group could collectively lose more than $1.5 million this year.

Also in Queensland there was a recent small farmgate price increase, for one group of dairy farmers, that does not even cover the inflation rate of 3.6%, let alone increases in costs of production which have been much higher than inflation this year.

It has been reported that in the early stages of current negotiations with a major processor, Parmalat, New South Wales farmers are being asked to take a drop in farmgate price of 3‐4 cents per litre for new contracts to supply milk to a major supermarket home brand contract won by this processor.

Analysis of ABARES Farm Survey data indicates that average NSW farm profit per litre over the past 10 years has been just 1 cent per litre. A 3‐4 cents per litre cut in farmgate price would render the vast majority of NSW farms supplying the drinking milk market unprofitable and be catastrophic for the industry in NSW.

Nationally, it has been conservatively estimated there is the potential for an annual loss of at least $227 million from the value chain with consequent impacts on farmgate prices.

An analysis of the impact of the $1.00 per litre pricing on the Western Australian dairy industry value chain undertaken for the Western Australian Farmers Federation (WAFF) has estimated that the discounting will take $25.2 million per year out of the Western Australian milk value chain.

“The price cuts are unsustainable and the plain fact is milk priced at $1 per litre does not bring in enough money to support farmers, processors and retailers. The evidence shows it and Coles knows it,” Mr Griffin said.

Mr Griffin said, “This is why the ADF is calling on the Federal Parliament to support industry’s recommendations to rectify this unsustainable situation as a matter of urgency.”

ADF’s submission can be found at the following link (submission number 150, supplementary submission no.1):

http://www.aph.gov.au/senate/committee/economics_ctte/dairy_industry_supermarket_2011/submissions.htm

Media Contact:

Chris Griffin, ADF President

M: 0402 846 239

“After six months of unsustainable pricing of its home brand milk, this cynical marketing tactic has devalued milk as a product and caused unnecessary worry for farmers, particularly those in the key retail drinking milk states of Queensland, Northern NSW and WA,” said ADF Vice President Adrian Drury.

Consumers are not the winner from this, they know they are simply paying more on other food items and ADF is disappointed that Coles is not listening to its customers by pricing milk sustainably.

Consumers can support dairy farmers by buying branded milk and not supermarket brands.
The last time milk was a $1 per litre was around 1992. No-one can live on a wage set at 1992 levels.

More broadly Coles’ action has cut at the heart of all farmers since (whether they supply Coles or not) they are seeing the product they produce ‘devalued’ in the market place.

“Coles has shown total disregard for dairy farmers’ livelihoods and for their customers,” Mr Drury said.

“Coles needs to acknowledge publicly that by reducing the price of milk to $1 per litre on their home brand milk they made a mistake and now set prices that are sustainable.”

Cole’s claim that milk consumption is up, ignores the reality that milk is an inelastic product and that any increase in consumption is due to normal population growth.

The recent inability of the ACCC to address this problem demonstrates that strengthening existing laws, or making new regulation, is the only answer to Cole’s actions.

The ADF has made recommendations to amend the Competition and Consumer Act 2010 and they

are:

• a mandatory Supermarket Code of Conduct be developed, in consultation with industry, with an Ombudsman or Commissioner with strong powers;
• a definition of unconscionable conduct be inserted into the Act;
• an “effects” test be reintroduced;
• a statutory duty of good faith be enacted as part of the Act; and
• that the United Kingdom Competition Act 1998 be examined, section 18 in particular, with a view to amending the Act along similar lines to prevent predatory pricing and the misuse of market power.

“The price cuts are unsustainable and the plain fact is milk priced at $1 per litre doesn’t bring in enough money to support farmers, processors and retailers. Coles knows it,” Mr Drury said.

Media Contact:

Adrian Drury, ADF Vice President

M: 0428 569 245

Wes Judd, ADF President

M: 0407 132 854

ADF Vice President, Adrian Drury today responded to the ACCC announcement on Coles’ unsustainable milk marketing tactic by saying, “The damage done to the dairy industry by unsustainable discounting by Coles means I can only agree with Senator Xenophon who called the ACCC a toothless Chihuahua.

The ACCC is silent on what is happening in regional or remote areas of Australia – Darwin, Kununurra and other areas. It is impossible for Coles to buy, transport, store and sell milk in these areas for $1 per litre.

The ACCC is also silent on the issue of whether Coles has undertaken deceptive and misleading conduct by claiming in its advertising that they were not affecting dairy farmers.

Mr Drury said, “It is clear that small retailers and vendors have suffered and lost business as a result of the discounting war started by Coles and that farmers have been directly impacted.

In Queensland, many dairy farmers have been impacted already by the clear shift in sales to home brand milk with some set to lose around $8,000 this year.

Almost twenty dairy farmers have left the industry in Queensland citing Coles’ actions as the main contributing factor – they know the price is unsustainable.

The price cuts are unsustainable and the plain fact is milk priced at $1 per litre doesn’t bring in enough money to support farmers, processors and retailers. Coles knows it.

Mr Drury said “Dairy farmers certainly do not believe that Coles has been absorbing the cost of its marketing stunt. There are over 20,000 products in Coles stores and we believe Coles has been using milk as a loss leader to draw in customers while fleecing them on other products.

The ACCC has obviously conducted a very narrow inquiry that did not look at issues around false advertising, any long-terms impacts of this cynical marketing tactic on farmers, corner stores, independent service stations and milk vendors or what the cost is to Coles at the checkout.

The ADF is disappointed that the ACCC did not publicise its terms of reference or actually discuss this inquiry with farmers.

Media Contact:

Adrian Drury, ADF Vice President

M: 0428 569 245

Wes Judd, ADF President

M: 0407 132 854

Policies, regulation and decision making for the dairy sector of tomorrow is in good hands now the pilot Developing Dairy Leaders Program has been completed.

A group of 15 young people from across Australia (listed below) completed the program which involved a four- day residential skills development program in Melbourne with state and national industry leaders and time in Canberra learning about advocacy and policy development at a national level.

The program, developed by Australian Dairy Farmers (ADF) and Dairy Australia and delivered by the National Centre for Dairy Education Australia (NCDEA), aims to build on the leadership skills of people aged 18-30 who are committed to the dairy industry and have been identified as potential future leaders.

Throughout the program participants learned to articulate, present and debate ideas, provide advocacy and representation and participate as a member of a board. The group was also given media training and now know how to lead community or industry organisations and balance work and professional development. Participants have also gained formal accreditation through the NCDEA as a result of the program.

Gippsland participant Sally Pate said the program provided an in depth look into the operations of the Australian dairy industry and the many leadership avenues available.

“The media training provided throughout the program has helped me develop some key skills in how to present myself and communicate more effectively,” Ms Pate said.

Ty Maidment, from Meadows in South Australia, said the program had helped him develop his leadership and networking skills and strengthen his knowledge of the overall industry.

“It’s been a great opportunity for me to learn about industry board structures, corporate governance and government related issues and I’ve been able to hone in on my public speaking skills. It’s definitely going to help me in the future in the industry and open up different options for me.”

ADF Vice President Adrian Drury said the program was a key activity in supporting the development of the dairy industry’s state level leaders and the dedication and willingness of participants to put something back into their industry was great to see.

“I have met the participants of the Developing Dairy Leaders Program and believe them to be a group of young people who are more than capable of responding to any challenge thrown at them, leading our industry and staying true to themselves,” Mr Drury said.

Dairy Australia managing director Ian Halliday said the course had attracted a group of enthusiastic and passionate young people from the industry.

“It is very encouraging to see a group of young people so keen to build on their dairy careers, which just goes to show the future of our industry, is in extremely good hands,” Mr Halliday said.

The program was developed in response to the Australian Dairy Industry Council (ADIC) Dairy Leadership – An Industry Blueprint 2010-15, which identified that 200 leadership roles are required across the industry – 40 new people each year.

Wesfarmers has rejected a plea from a group of its shareholders to put an end to Coles’ cut-price milk and dairy campaign.

Australian Dairy Farmers (ADF) Vice President Adrian Drury said Wesfarmers today blocked a moved by the shareholders to force a general meeting.

“The refusal by Wesfarmers to even discuss the Coles “down-down” campaign shows no respect for its shareholders. It also shows total disregard for dairy farmers’ livelihoods and for customers who in the end will be hit with higher prices when Coles seeks to recoup its losses,” Mr Drury said.

On 10 May concerned Wesfarmers shareholders sent a letter to Wesfarmers Chairman Bob Every seeking an extraordinary general meeting of the company to consider two resolutions:

(i) Explain the Coles pricing strategy on milk and other dairy products and how this is consistent with the origins, values and corporate social responsibility of the company; and

(ii) Refrain from implementing and persisting with the Coles “down-down” milk and dairy product price reductions.

“Instead of allowing its shareholders to ask questions and express their views, Wesfarmers called in its lawyers to block any free discussion of Coles’ cutthroat campaign,” Mr Drury said.

Wesfarmers responded to the shareholders’ call for a meeting by saying ‘the Directors have considered your request and decline to call the meeting’ on ‘the basis that the proposed resolution relates to management matters.’

“Wesfarmers, a company whose origins lie with farmers, have missed an opportunity to be true to their roots and show leadership on this issue. They have missed the chance to explain to farmers and their families why they are letting Coles get away with its tactics.”

“Unlike Wesfarmers ADF will consult with farmers about what our next move is.”

“Wesfarmers seems to be unable or unwilling to rein in the Coles ‘bully boys’. It needs to make its subsidiary Coles treat consumers and dairy farmers with respect,” Mr Drury said.

“Coles has not been upfront with the public on their tactics and the impact of its campaign on Australia’s dairy industry. Now its parent company Wesfarmers is joining the strategy to shut down discussion. It’s extreme arrogance to act as though they are not answerable to shareholders or anyone else.

“These price cuts are unsustainable and the plain fact is milk priced at $1 per litre doesn’t bring in enough money to support farmers, processors and retailers. Coles knows it,” Mr Drury said.

Media Contact:

Adrian Drury, ADF Vice President

M: 0428 569 245

ADF has sent a letter on behalf of dairy farmers, Coles’ customers and others concerned by the Wesfarmers subsidiary actions to Wesfarmers Chairman Bob Every seeking an extraordinary general meeting of the company to consider two resolutions:

That the company:

(i) Explain the Coles pricing strategy on milk and other dairy products and how this is consistent with the origins, values and corporate social responsibility of the company; and

(ii) Refrain from implementing and persisting with the Coles “down-down” milk and dairy product price reductions.

“Wesfarmers needs to rein in Coles. It needs to make its subsidiary treat consumers and dairy farmers with respect,” Mr Drury said.

“Coles has not been upfront with the public on their tactics and the impact of its campaign on Australia’s dairy industry or its customers. Now is the opportunity for its parent company Wesfarmers to be open, honest and transparent with those who own it and have helped build the company into what it is now.”

Wesfarmers, a company whose origins lie with the farmers must take responsibility for Coles’ actions that are now directly impacting farmers and be answerable to its shareholders.

Coles is selling milk cheaper than many varieties of bottled water, significantly devaluing one of the most premium fresh products available.

“These price cuts are unsustainable and the plain fact is milk priced at $1 per litre doesn’t bring in enough money to support farmers, processors and retailers. Coles knows it and so should Wesfarmers,” Mr Drury said.

Media Contact:

Adrian Drury, ADF Vice President

M: 0428 569 245

Chris Griffin, ADF President

M: 0402 846 239

Australian Dairy Farmers (ADF) Vice President Adrian Drury has noted the release of the Senate Economics References Committee second interim report and its recommendations of a watching brief on Wesfarmers’ subsidiary Coles.

“We don’t trust Coles either,” Mr Drury said. “They need to be watched like hawks and it is important the Senate Committee will be keeping an eye on the duration of the ‘Down Down’ campaign and the outcome of renegotiated contracts with processors and the impacts on farmgate prices.”

It should also be noted that Coles has repeatedly refused to rule out dropping prices for processors and farmers in future contracts.

The Senate Committee’s report highlights numerous examples of Coles’ being disingenuous, stretching the truth and showing a distinct lack of transparency. It is worth highlighting a few.

On pages 8 and 71 the report highlights the fact that Coles has used misleading and deceptive language by using the phrase ‘staying down’.

Coles Managing Director, Ian McLeod is quoted as stating, “We have avoided using words like ‘permanent’ or ‘every day’, as some of our competitors have, because we believe that particular statement leads people to believe that the price would never go up.’

The report then states ‘contrary to Mr McLeod’s assertion that Coles is not using words like ‘every day’, the committee notes that various Coles catalogues have incorporated that statement as part of the down and staying down campaign, with direct reference to the milk price cuts.’

ADF believes Coles has used false advertising and engaged in misleading and deceptive conduct as the average consumer would view the words ‘staying down’ as meaning a permanent discount, not for six months with a large number of caveats as Coles has subsequently tried to claim.

As Senator Colbeck pointed out at the hearing on Tuesday 29 March, “staying down to me is deceptive. Yet it is not the reality, staying down means for about six months, because that is what the Australian consumer expects. Do I have to write a new dictionary based on Coles?”

Coles has consistently maintained the fiction that lower retail prices on milk will have no flow-on effect to processors and dairy farmers. On page 14 and 15 of the report this fiction is debunked.

Woolworths is quoted as saying, the lower prices…”set a new benchmark, and can be expected to flow back to processors and farmers as new supply and pricing arrangements are negotiated over the coming months and years.’

On pages 41, 69 and 70 the Senate Committee report highlights a fact that Coles has continued to wilfully ignore – that many Queensland dairy farmers’ milk payments are being affected right now, sometimes by thousands of dollars, because of Coles’ cutthroat discounting of milk.

Coles has frequently called for transparency across the value chain, an exchange highlighted on page 46 of the report shows this to be the hollow call it is.

“The apparent discrepancy in the transparency of the prices between the processors and the producers, compared to the retailers and the processors, was further discussed during ADF’s appearance at a public hearing.”

Senator Colbeck: “You gave some evidence that farm gate prices are on your website, so it is pretty easy to get information on farm gate prices. The real place where prices are hidden is, in fact, between the wholesaler and the retailer…So for Coles to claim that the lack of transparency is, in fact, at the farm gate is not necessarily the case.”

Mr Griffin (ADF Vice President) – “That is right.”

In addition to the examples outlined above Mr Drury says “Coles has shown contempt for consumers, contempt for dairy farmers and contempt for the Senate Standing Committee on Economics by providing their answers to Questions on Notice the day before the Committee is due to report. It is yet another example of Coles being tricky.”

Wesfarmers needs to make its subsidiary Coles treat consumers, dairy farmers and the Senate with the respect and the seriousness it deserves and be transparent, honest and open in their answers.

Coles has hidden behind claims that information is ‘commercial-in-confidence’ or was provided behind closed doors ‘in-camera’ over a dozen times in their ‘answers’ to the Senate Committees questions on notice.

Mr Drury says, “this is hardly the transparent behaviour that Coles is so fond of advocating. They seem to believe that transparency is okay for everyone else but not for themselves. ADF gives Coles a big thumbs down on openness and honesty.”

One of the questions asked of Coles related to what happened to the price of all the other products that Coles has not cut the price on – approximately 15,000 products in a typical supermarket?

Coles refused to answer the question.

Mr Drury says, “This is a damning indictment of Coles. All along ADF has said that dairy farmers do not believe that Coles would absorb the cost of its unsustainable price cuts and that they would be passed on to dairy farmers and Coles’ customers.”

Coles’ competitors have stated, both publicly and privately, that these price cuts are unsustainable.

Mr Drury says, “Dairy farmers do not trust Coles and neither should their customers. There are many reasons not to. Throughout this debate Coles has knowingly used figures that are deliberately misleading. ADF is now taking the opportunity to correct them.”

Attached is a fact sheet refuting many of Coles myths.

The key point in this whole debate is that milk priced at $1 per litre is simply not sustainable – there is not enough money in the value chain to support farmers, processors and retailers at that price. Coles knows it. The last time milk was priced at $1 per litre was in 1992. Selling a product for what it costs (or less) to produce, transport and retail is unsustainable.

Media Contact:

Adrian Drury, ADF Vice President

M: 0428 569 245

ADF Vice President Adrian Drury says, ‘Dairy farmers do not trust Coles and neither should their customers. There are many reasons not to. Throughout this debate Coles has knowingly used figures that are deliberately misleading. ADF is now taking the opportunity to correct them.’

Yesterday in the media Wesfarmers Managing Director Richard Goyder was quoted as saying that ‘what Coles is doing is hopefully increasing demand for milk.’ It is a fact that demand for drinking milk is inelastic. Consumers only buy and use a certain volume. Mr Goyder must know this.

He must also know that milk priced at $1 per litre is simply not sustainable – there is not enough money in the value chain to support farmers, processors and retailers at that price. Coles knows it. The last time milk was priced at $1 per litre was in 1992. Selling a product for what it costs (or less) to produce, transport and retail is unsustainable.

Woolworths and other retailers have stated, both publicly and privately, that these price cuts are unsustainable. The reality is that Coles’ marketing tactic is sacrificing the true value of milk to use it as a tricky tool to lure customers from their competitors.

Mr Drury says ‘Dairy farmers certainly do not believe that Coles is going to absorb the cost. Who will then? Their customers or those at the start of the chain – dairy farmers?’

It should also be noted that Coles has repeatedly refused to rule out dropping prices for processors and farmers in future contracts.

Associate Professor Frank Zumbo from the School of Business Law and Taxation at the University of New South Wales in an article in the Newcastle Herald on 9 March 2011 made a very pertinent statement regarding the potential impacts on Coles’ customers.

‘While Coles has said it has reduced the price of 5,000 products, it has been silent on what has happened to the price of the 15,000 other products sold in a supermarket. Again, consumers would lose out to the extent that the increases in the 15,000 non-milk products were greater than the reduction in the price of home brand milk.’

This aggressive discounting has happened before in the United Kingdom where the key executives behind this Coles marketing strategy are from.

An article in the Business Spectator from 7 February 2008, sums up this team of British executives and Mr McLeod’s primary goal perfectly, stating it is ‘creating operating environments in which to relieve customers of their disposable income.’

Mr Drury says ‘We believe that the Coles’ executives are here with the intent of replicating the UK model. It ultimately leads to less choice, higher prices for customers and unsustainable pressure on farmers.’

ADF has reviewed Coles’ most recent media ‘fact’ sheet and it is full of mistruths, evasions, tricky lines and spin. In the following statement we have dispelled some of their trickiness and shown why they cannot be trusted by anyone, particularly consumers.

Coles’ facts aren’t facts – they are deliberately misleading

Coles’ claim – “Myth One: Coles is refusing to meet with dairy farmers about its milk price cut announcement

Coles has discussed the price reductions with milk processors and has met with the peak milk industry organisation, Australian Dairy Farmers, and other farmer organisations.”

The Facts:

Coles has met with the ADF twice. Even though the ADF, and other industry stakeholders, have pointed out the facts around this issue, Coles continues to peddle the same misleading statements.

We contend that although Coles have met with some industry groups, they have yet to listen and act upon the industry’s concerns – and in fact seem to be outright ignoring them.

Coles know that dairy farmers in Queensland and NSW, for example, make about 2 cents a litre farm profit according to official ABARE statistics (ABARE Farm Survey Exercises for 2009-10) and have suffered severe impacts from floods and cyclones and yet they are happy to cut the price of milk by significantly more than this per litre and still try to claim that it is sustainable for dairy farmers.

The meetings could be seen as yet another part of Coles’ public relations and marketing strategy. Meeting with industry stakeholders solely for the purpose of being able to say they have met with them, not with any real intention of listening or acting on dairy farmers concerns.

Coles’ claim – “Myth Two: Coles’ retail milk price cut will push down the farm gate price of milk.

The farm gate price dairy farmers receive is set by the world price because most Australian milk products are exported. In any case, Coles buys milk from the major milk processing companies, not direct from the farm gate and Coles paid a higher price to milk processing companies in mid-January. As such, the farm gate price should not be affected by our decision to reduce the retail price.”

The Facts:

Coles has consistently claimed that over 50% of all milk production goes overseas as exports. This is just plain wrong and Mr McLeod and his overseas team of executives must be aware of this by now.

Approximately 55% of Australia’s milk production is consumed domestically, significantly more in Queensland (95%), Western Australia (70%) and New South Wales (66%). In these states retail sales of drinking milk are the key regional market and farm gate price driver (see table 1).

Coles like to say that farm gate price is set by the world price because they can then absolve themselves of any responsibility for impacting the price of milk. This is poppycock for dairy farmers in Queensland, Western Australia and Northern New South Wales. Coles’ actions have a big impact and it is being felt already.

Processors and dairy farmers who supply the drinking milk market rely on the margin from branded milk sales for their profitability. Competition from unsustainably priced Coles home brand milk is taking market share away from branded products.

This reduces the amount farmers receive from processors as an increased share of Coles home brand milk is being sold at little or no margin and less of the more sustainably priced branded milk is being sold.

Many Queensland farmers whose milk payments are linked to branded milk sales have already seen their milk cheques drop this month by thousands of dollars per farmer.

As Coles steals market share away from proprietary branded milk sales these farmers milk cheques go down, down, down. This is a direct result of Coles ‘cut throat’ discounting.

So it’s no wonder dairy farmers are angry when Coles promotes the spin to all Australians that they are not hurting farmers when it is simply not true. And then Coles has the hide to ask Australian consumers to trust them.

What Coles needs to do, is stop being tricky and raise its prices to what is fair and sustainable for its milk suppliers, Australian dairy farmers. We need to focus on sustaining our critically important food producing industries not devaluing their products, which ultimately leads to undermining investment, supply and choice and then ultimately to higher prices for customers.

Coles’ claim – “Myth Three: Coles’ actions are anti-competitive.

Our intent is to provide lower priced milk for our customers while not adversely affecting our suppliers. 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. Coles has therefore reduced its own profit margin on milk sales so that it can provide a benefit to its customers.”

The Facts:

A representative from Coles gave evidence to a Senate inquiry last year that margins were about 20 percent on the prices then of approximately $1.20 per litre. They have now reduced the price by up to 33 percent to $1 per litre, this would appear to mean that Coles cannot be making a profit on their milk sales and is using the entire category as a loss-leader.

ADF believes there is a prima facie case under section 46, including 46 (1AA) of the Trade Practices Act 1974 (now the Competition and Consumer Act 2010) that Coles’ actions constitute predatory pricing.

It is our belief that Coles’ actions are designed to steal market share away from, and damage, their competitors, such as other major retailers, corner stores, independent petrol stations and other small retailers of milk, and will lead to a substantial lessening of competition in the market place.

We also believe this action by Coles impacts the viability of branded dairy products and will lead to less product variety on supermarket shelves.

It is our view that these actions will ultimately lessen competition for consumers through increasing prices and decreasing product choice as the experience in the United Kingdom has shown.

Dairy farmers certainly do not believe that Coles is absorbing the cost of these unsustainable price cuts. Who are then – their customers or those at the start of the chain – dairy farmers?

It should also be noted that Coles has repeatedly refused to rule out dropping prices for processors and farmers in future contracts.

Coles’ claim – “Myth Four: Coles funded lower milk prices through higher petrol prices at Coles Express.

Coles does not cross subsidise lower grocery prices through higher petrol prices. Pricing of these products is quite separate. Petrol prices have been rising because of higher global oil prices.”

The Facts:

According to the general manager of FUELtrac (a fuel monitoring agency), Geoff Trotter, petrol prices rose by up to 15 cents per litre on the weekend of January 29 and 30, just days after Coles announced its price cut on Australia Day. ”I think there is a connection between their grocery activities and their petrol activities,” Mr Trotter told AAP. ”If there is an opportunity for them to cross-subsidise, if they are giving away margin on bread and milk, fuel is a wonderful way to recover that margin.”

Associate Professor Frank Zumbo from the School of Business Law and Taxation at the University of New South Wales in an article dated the 16th February titled “Don’t be fooled, the supermarkets are milking us”, stated that “The sceptical customer will ask if the major supermarket chains are listening to consumers on the price of other products. We have seen petrol prices shoot up opportunistically despite the strong Aussie dollar and the Singapore benchmark price we use to calculate local prices having remained consistent in recent weeks. Yes, international crude oil prices have jumped but local prices are instead linked to the refined price of petrol out of Singapore. So petrol prices have jumped quickly and the major retailers have been able to increase their average retail petrol profits during the past year.” And “This is the old “loss leader” trick. Get customers hooked by a super special and then fleece them on other products. It’s the oldest trick in the book and consumers shouldn’t be fooled.”

Coles’ claim – “Myth Five: Lower Coles brand milk prices will result in lower branded milk prices and hurt farmers.

Coles has increased the price we pay the milk processors for Coles brand milk, so they have no reason to reduce farm gate milk prices as a result of the Coles brand retail milk price reduction. Any decision about branded milk prices is a matter for the milk processors.”

The Facts:

Coles has admitted that sales of their home brand milk have increased. This alone hurts farmers as there is an immediate impact on farm income. For some dairy farmers when branded milk sales drop their milk income drops by thousands of dollars.

Processors make little or no profit on home brand milk sales. A long-term increase in the sales of home brand milk will see flow-on affects to farmers as Coles, due to its market power, dictates the price at which suppliers sell to them.

As Coles’ home brand sales increase, they dominate shelf space and customers have less choice. This vicious cycle continues until in the long-term there is absolute domination by home brands with no customer choice, little product innovation and worst of all for the customer – a likely increase in the price of their home brand milk once Coles’ has achieved its goal of market dominance.

Coles claim – “Myth Six: Lower Coles brand milk prices are part of a plan to replace fresh milk and with long life milk.

Coles’ customers want high quality fresh milk at the lowest possible price. To achieve that, Coles’ is paying milk processors more for their milk, and fully absorbing lower retail prices. That is a win for the Australian dairy industry and a win for our customers.”

The Facts:

Coles plan is to use cutthroat unsustainable milk discounts to steal customers and business away from their competitors, such as other major retailers, corner stores, independent petrol stations and other small retailers of milk to gain more market share. This will ultimately lead to a substantial lessening of competition in the market place.

They also want to squeeze farmers and processors which will damage the dairy industry, particularly in Queensland, Northern NSW and Western Australia.

Coles’ claim – “What drives farm gate milk prices?

The farm gate price dairy farmers receive is set by the world price because a large proportion most Australian milk products are exported. The farm gate price is rising because global demand for milk product is rising (see Dairy Australia press release 14 February 2011).”

The Facts:

Coles have consistently tried to confuse this issue by quoting Victorian price increases of 22% when they know full well that Victoria is chiefly a dairy export market, not a domestic drinking milk production market.

What Coles has repeatedly failed to mention is that milk prices to farmers in the key domestic drinking milk production markets of NSW and Queensland have dropped by more than 15% in Queensland and 10% in NSW in the last 12 months. This includes farmers who supply milk which goes into Coles’ home brand milk bottles.

The share of drinking milk production in Queensland is 95%, New South Wales is 66%, Western Australia is 70% and Victoria’s share is under 9% (see table 1). Yet Mr McLeod persists in quoting figures from Victoria which is clearly not affected as significantly as the key drinking milk production states of Queensland, New South Wales and Western Australia.

Coles’ claim – “How much milk does Coles sell?

Coles’ milk sales (including modified drinking milks) represent less than 5% of Australia’s total milk production.”

The Facts:

Mr McLeod also consistently tries to downplay Coles’ impact on the market by saying that Coles milk sales represent less than 5% of Australia’s total milk production.

What he again fails to mention is that only 25% of Australia’s total milk production is used as drinking milk in the domestic market. The rest is used in manufacturing cheese, butter, milk powders and other products.

In reality Coles milk sales represent 20% of Australia’s drinking milk production, which is a significant percentage in anyone’s language and is made even more so by the fact that Coles’ competitors have been forced to match them in these unsustainable milk prices.

When coupled with the fact that in recent times Coles has accounted for around 40% of all domestic supermarket milk sales there is a substantial impact on the drinking milk market and farmers in Queensland, Western Australia and New South Wales in particular.

More broadly Coles action cuts at the heart of all farmers since (whether they supply Coles or not) they are seeing the product they produce “devalued” in the market place.

In a tough production year, that is tough to take and another reason why farmers are so angry about Coles’ using them as pawns in its tricky marketing strategies.

Media Contact:

Adrian Drury, ADF Vice President

M: 0428 569 245

Chris Griffin, ADF Vice President

M: 0402 846 239

Australian Dairy Farmers (ADF) Vice President Adrian Drury has challenged Coles to explain why they have made a five cent a litre price increase as a one-off payment to WA dairy farmers alone.

Coles has announced a five cents per litre increase to WA milk processing company, Brownes Dairy.

Whilst ADF acknowledges this is a step in the right direction for sustainable milk pricing for Western Australian farmers Coles needs to explain why they have not done it for the rest of Australia.

Mr Drury said “Coles also needs to acknowledge publicly that by reducing the price of milk to $1 per litre on their home brand milk they made a mistake and set prices that are unsustainable.”

The last time milk was a $1 per litre was around 1992. No-one can live on a wage set at 1992 levels. Would Coles’ executives be willing to go back to 1992 wage levels?

“Reversing this decision and raising their prices to a sustainable level for farmers, processors and retailers is the right thing to do.”

Coles is currently undermining the value and sustainability of fresh milk supplies across the whole country.

ADF is seeking an explanation from Coles on why they took this action in WA because it does not seem logical to increase prices in one market alone, when their marketing tactic impacts the whole of Australia. They must understand that the price on the retail shelf is linked to what farmers ultimately get paid.

ADF would like to point out to Coles that farmers in other key drinking milk production markets of Queensland and NSW have also been doing it tough. Apart from the devastating floods and cyclone Yasi in Queensland they too have been impacted by low milk prices and also, as Coles well knows, will be hardest hit by their unsustainable price cuts on milk.

Dairy farmers in South Australia have also been doing it tough with drought and low milk prices and will be hit hard too.

Mr Drury asks “Have Coles only targeted WA because their parent company Wesfarmers is based in Western Australia? Surely even Coles could not be that cynical?”

Coles is using discounted milk as a marketing tactic to get more customers through their doors while also rapidly growing the market share of their own generic supermarket brands, at the expense of private brand milk. This tactic is fundamentally changing the market and undermining the sustainability of the industry and cannot be continued in the long term.

The ruthless discounting of Coles has been described by other retailers as unsustainable, and it is going to hurt the entire industry including dairy farmers, service businesses, transport operators, processors, vendors, and other retailers. It will threaten the jobs of employees throughout the whole industry. Many farmers in Queensland will see their milk cheques drop next month as a direct result of the Coles’ cut-throat price discount campaign.

“It is time Coles raised prices to a sustainable level and stopped their marketing tactic. This recent increase in WA is only a temporary fix.”

Media Contact:

Adrian Drury, ADF Vice President

M: 0428 569 245

After experiencing life as an environmental scientist, the flexibility and practical side of dairying drew Duncan Macdonald back to the industry where he is now setting his sights on being a part of Tasmania’s next wave of dairy leaders.

The Yolla dairy farmer, who manages one of three herds in a 1500-cow dairy business, is taking part in the dairy industry’s new Developing Dairy Leaders Program along with fellow Tasmanians Andrew Aldridge from Branxholm and Christopher Haynes from Ulverstone.

The pilot program, developed by Australian Dairy Farmers (ADF) and Dairy Australia, aims to build on the leadership skills of people aged 18-30 who are committed to the dairy industry. The three Tasmanians are part of a group of 17 young dairy enthusiasts, 10 men and seven women, from across Australia taking part in the program.

The group recently completed the first stage of the pilot program, which involved a four-day residential skills development program in Melbourne where participants interacted with current industry leaders from various state and national organisations.

Duncan said the program, which is being delivered by the National Centre for Dairy Education Australia (NCDEA), appealed to him because of the opportunity to meet other people of a similar age and learn how the upper level of the industry works.

“It has been great meeting like-minded individuals,”he said.

“I think the key take home message so far is to take as many opportunities to further yourself.”

Participants learn how to articulate, present and debate ideas, provide advocacy and representation, participate as a member of a board, participate in a media interview or presentation, lead and manage community or industry organisations and manage personal work priorities and professional development.

The next phase of the program will involve a regionally based project with the support of an industry- leading mentor. It will conclude with a two-day residential policy and media development program in Canberra in May. The end result being formal accreditation.

The program has been developed in response to the Australian Dairy Industry Council (ADIC) Dairy Leadership – An Industry Blueprint 2010-15, which identified 200 leadership roles are required across the industry – 40 new people each year.

ADF Vice President Adrian Drury said the Developing Dairy Leaders Program was a key activity in supporting the development of the dairy industry’s state level leaders.

“I have met the participants of the Developing Dairy Leaders Program and believe them to be a group of young people who are more than capable of responding to any challenge that is thrown at them, leading our industry and staying true to themselves,” Mr Drury said.

Dairy Australia managing director Ian Halliday said the course had attracted a group of enthusiastic and passionate young people from the industry.

“It is very encouraging to see a group of young people so keen to build on their dairy careers, which just goes to show the future of our industry is in extremely good hands,” Mr Halliday said.

“While the course has just started participants have taken hold of the opportunity to learn from current leaders with gusto and are already taking the necessary steps to become the next wave of dairy industry representatives as managers, presidents, directors and board members.”

The Developing Dairy Leaders Program is one of the many examples of the dairy service levy at work. Farmers receive a benefit of $3 for every $1 invested by Dairy Australia on their behalf. For more information on this and other levy investments visit www.dairyaustralia.com.au

Media Contact:

Felicity Gallagher, Dairy Australia External Communications Manager

M: 0417 540 059

E: fgallagher@dairyaustralia.com.au

Dairy farmers don’t come any more passionate than this Benger man. He loves the industry and has been a part of it since he was born. So who better to be one of the state’s future leaders than Michael Giumelli?

“It’s a family tradition; I love the lifestyle, the flexibility and reward that comes with it,” he said.

Michael is one of 17 young dairy enthusiasts, 10 men and seven women, across the country to take part in the dairy industry’s new Developing Dairy Leaders Program.

The pilot program, developed by Australian Dairy Farmers (ADF) and Dairy Australia, aims to build on the leadership skills of people aged 18-30 who are committed to the dairy industry.

The group recently completed the first stage of the pilot program, which involved a four-day residential skills development program in Melbourne where participants interacted with current industry leaders from various state and national organisations.

Michael applied for the program, which is being delivered by National Centre for Dairy Education Australia (NCDEA), to gain personal development and learn how to improve the farm business.

“So far it has been a fantastic learning experience,” Michael said.

“I have learnt a lot, the trip to Melbourne offered a good insight into a broad range of topics. I will use the experience gathered through the program as part of my future involvement in the WA dairy industry.”

Participants learn how to articulate, present and debate ideas, provide advocacy and representation, participate as a member of a board, participate in a media interview or presentation, lead and manage community or industry organisations and manage personal work priorities and professional development.

The next phase of the program will involve a regionally based project with the support of an industry- leading mentor. It will conclude with a two-day residential policy and media development program in Canberra in May. The end result being formal accreditation.

The program has been developed in response to the Australian Dairy Industry Council (ADIC) Dairy Leadership – An Industry Blueprint 2010-15, which identified 200 leadership roles are required across the industry – 40 new people each year.

ADF Vice President Adrian Drury said the program was a key activity in supporting the development of the dairy industry’s state level leaders.

“I have met the participants of the Developing Dairy Leaders Program and believe them to be a group of young people who are more than capable of responding to any challenge thrown at them, leading our industry and staying true to themselves,” Mr Drury said.

Dairy Australia managing director Ian Halliday said the course had attracted a group of enthusiastic and passionate young people from the industry.

“It is very encouraging to see a group of young people so keen to build on their dairy careers, which just goes to show the future of our industry is in extremely good hands,” Mr Halliday said.

“While the course has just started participants have taken hold of the opportunity to learn from current leaders with gusto and are already taking the necessary steps to become the next wave of dairy industry representatives as managers, presidents, directors and board members.”

The Developing Dairy Leaders Program is one of the many examples of the dairy service levy at work. Farmers receive a benefit of $3 for every $1 invested by Dairy Australia on their behalf. For more information on this and other levy investments visit www.dairyaustralia.com.au

Media Contact:

Felicity Gallagher, Dairy Australia External Communications Manager

M: 0417 540 059

E: fgallagher@dairyaustralia.com.au