What are the price wars doing for our small local retailers and our local dairy farmers? We’re interviewing them this week for Radio YYY 87.6FM to ask for their views and experience.
The Australian Competition and Consumer Commission is monitoring tit-for-tat discounting of the staples milk eggs butter and breakfast cereals. The test is whether Coles and Woolworths are engaging in illegal “predatory pricing” by using their market power to cut prices so low that they smother competition from smaller rivals.
The National Baking Industry Association says: “It’s hurting small business. We use milk as something to get people through the door. But if they go to Woolworths (or Coles) to buy their milk they’ll get their bread there too.”
IGA a collective of 1300 independent supermarkets has accused Coles and Woolworths of “putting prices up on back end lines and the customers will pay. It’s smoke and mirrors and what the big duopoly is doing is just a joke.”
Coles has dropped prices on 5000 products through its “down down” campaign and has also banned sales of beef with added hormones.
Coles says: “Customers are extremely value-conscious at the moment. The trend first started in earnest in the depth of the global financial crisis and that mindset about looking for value for money and being frugal is certainly something that has stayed around.”
The Senate economics committee is investigating the effect of cut-price milk on the Australian dairy industry.
Aldi supermarket chain told the enquiry it had no option but to match its bigger rivals’ $1 a litre milk offer. “Aldi has not passed and is not considering passing on the costs associated with this price reduction to our suppliers.”
Treasury has concluded milk discounting is a short-term win for consumers. “It is less clear whether any long-term negative consequences may arise and if they do whether those consequences would outweigh the net community benefits.”
Farmers retailers and food manufacturers are wondering how long it can last. What is the cost to the wider community?
Price cuts have not been passed down to suppliers(dairy farmers) at this stage but Woolworths warns “This rapid price drop is unsustainable for the Australian dairy industry. Ultimately these prices set a new benchmark and can be expected to flow back to processors and farmers as new supply and pricing agreements are negotiated over the coming months and years.”
Coles and Woolworths do not buy their milk directly from farmers. They get it from National Foods (Dairy Farmers brand) Parmalat (Pauls brand) and the Murray Goulburn Co-Operative (Devondale brand).
IGA chairman Michael Daley objects to the “consumer must always win-win-win and it must be cheap-cheap-cheap approach to retailing. “If it is ultimately only about the consumer what happens to the small and medium businesses? If there is a lessening of competition prices will increase in the long term. If a farmer suffers in the long term the consumer won’t have any choice. Manufacturers’ profits will be squeezed as the supermarket labels eat into their market share. The supermarkets control it.”
The Australian Food and Grocery Council complains that “aggressive sustained discounting erodes reasonable margins and undermines the capacity for manufacturers to continue producing in Australia. If these low prices are at a level that does not allow for a fair return then Australia risks the loss of both food processors and producers in the long term.”