Hands Up If You’re In Favour Of Cheap Milk … Anyone?

One would be forgiven this week for assuming low prices are bad.

Coles’s January decision to sell house-brand milk for $1 a litre was followed by Woolworths deciding to do the same, which was, in turn, followed by cries from the dairy industry about monopoly and unsustainability. Leading, over the past few days, to a Senate committee sitting in judgment over $1 milk.

But the controversy is little more than the cries of producers seeking a political solution to competitive pressure.

In its submission to the committee, Bega Cheese expressed great concern. As did Clover Hill Dairies, Amalgamated Milk Vendors, the South Australian Dairyfarmers Association, and the Southern NSW Collective Bargaining Group.

All up, there were 116 submissions, from businesses, lobby groups, and politicians. Only three supported cheap milk.

Coles’s critics weave a terrifying story: that the supermarkets together want to drive out small dairy farmers from the industry.

Some farmers and industry groups have even seriously suggested that Coles wants to eliminate fresh milk from Australian supermarkets. Australians will then have to be satisfied with UHT, which is cheaper to store. The dairy industry will collapse. Rural towns will disappear. Then, once the milk plan has played out, on to eggs. Then meat.

But when has destroying your own product ever been a good business strategy?

Predicting the collapse of the Australian dairy industry is a long bow considering all that’s happened is a sale on milk.

Coles says it is covering the cost of reduced retail prices itself.

But if the chain were to demand savings from producers in the next round of supply contracts, it would be doing exactly what it should be doing: pressuring suppliers to reduce costs and to find ways to be more efficient.

There are buyers and sellers all down the retail chain – from farmers and processors, to supermarkets and us. Everyone should be trying to get the best deal. And if Coles thinks it can buy milk for less than the cost of production, nobody will sell it to the chain.

People will always want fresh milk, no matter what dastardly strategy is cooked up in a boardroom. Demand, meet supply.

And cheaper milk will lead to more milk sold, not less. The dairy industry is booming – in 2011 dairy cows are selling for 25 per cent more than two years ago.

There’s a lot backwards about the rhetoric over milk prices. For years we’ve been told supermarkets are a cosy duopoly; that Coles and Woolworths were less competitors than a cartel in a conspiracy against working families.

But the point of a cartel is to raise prices, not decrease them. If this is a cartel, it’s the most counterproductive in history.

Not only that, but cartel-mate Woolworths has joined the chorus saying Coles’s strategy is unsustainable. Woolworths is trying to turn public opinion on its rival.

More likely, it’s what it looks like on the surface – Coles being competitive, and Woolworths being forced to follow. Yet that’s enough to get the wheels of Parliament spinning wildly.

So who’s standing up for consumers? Unfortunately not the Australian Consumers Association, known as Choice.

Choice claims ”to ensure the consumer voice is heard loudly and clearly”. But its statement to the Senate says cheap milk ”is not a ‘win’ for consumers”.

Instead, it has taken this price cut to a household staple as a chance to push an ideological barrow – a grand national food policy with which the government can sustainably and benevolently guide agriculture, rather than leave production to the market.

No surprise, perhaps. Choice sees consumer interest as a side issue at best. The self-described association of consumers is more interested in fashionable environmental mantras such as food miles and ”green living”.

Each to their own. (Although the government thinks Choice represents all consumers. The non-profit was paid to run Kevin Rudd’s ill-fated GroceryChoice website.) With Choice off on a tangent, nobody is defending consumers against dairy producers who want protection from competitive pressure. It seems the only body truly acting in the interests of consumers is Coles.