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The shopper, the farmer & cheap milk

By Paul Costigan - 31 August 2016 16

milk-P1200106

One would like to think that it would be reasonably easy to work out what is happening with milk pricing in Australia. I have spent some time on this subject and I am still not sure.

It seems that the price the farmer receives for their milk has dropped because of a shift in world prices. As with so much of our produce, eg gas, the price we pay for Australian milk is linked to the will of international corporations and their movement of money.

I am sure that while the farmers at this end are being paid less, that the Big Money corporations are maintaining their levels of profits.

Australian milk distributors have been caught in this shift and have reduced amount they now pay their farmers. The worst case being Murray-Goulburn that used to be a farmers’ cooperative but was convinced to be privatised and open up to the share-market. Due to a strange set of decisions and the flow on from the world shift in prices, the corporation recently sought a claw back from its farmers a heap of money already paid to them.

In researching this topic, I could find all sorts of articles that justified the low price that our major supermarkets use to justify their dollar milk pricing that they offer us, the shoppers. It would be easy to accept these arguments, if you accepted that the big supermarket sector always has the country’s interests at heart (chuckle). But…..

Then we see milk farmers on the streets protesting their treatment by the supermarkets. They are witnessing friends walking off farms and others committing suicide. So something must be wrong.

Meanwhile we walk into any of the big supermarkets to be greeted by cheap milk – usually home-branded. So is it cheap milk?

Well yes – but while the milk is cheap we pay for it through the adjustments that supermarkets then apply to other key items. That is, the discount we receive on milk has been used to draw customers into the store knowing that the profit margins remain the same through adjustments on the other items we shoppers need to buy.

The only losers it seems are the farmers.

So the question we face as we reach for that cheap milk is how much do we care for the farm sector in Australia? So what can been done?

Some statistics were released that show that shoppers have responded to this situation by not buying the cheap milk. The percentage of shoppers who buy the cheap milk has fallen to 50%.

How do you choose which milk to buy at the supermarket?

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I have spent some time researching the next question – being which milk will see real money go back to the farmers?

The answer seems to be unclear. The best advice I can find is that you avoid the home brands. However I have also noticed that you can find right next to the well-labelled home brands others that pretend to be local milk.

Given I shop across several locations and several supermarkets, I find I need to stop and think about it every time I shop. It is not easy.

A word or two on being such a shopper – being one looking out for milk that provides some real payments to the farmers – I caution against the vigilante approach whereby some people feel the need to challenge others who chose to buy the cheap milk. There was a nasty case of this recently.

We do not need any ‘holier than thou’ self-appointed vigilantes wandering about our supermarkets – or anywhere else.

This article is about raising the issue and hopefully opening up the debate.

There will be those among the serial commentators who will jump in to defend the government and the Big Supermarket sector. Good on them.

To the others I ask – have you any other information you could offer about this milk issue? Do you know of any other research on the topic? I would appreciate any such information.

Has anyone evidence on which of the many milks sold in Canberra represents a good price paid to the farmers?

If there is anyone out there with current experience on the farm – or with relatives on a milk farm – please offer some thoughts on which milks we should be buying– here’s your chance.

 

What’s Your opinion?


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16 Responses to
The shopper, the farmer & cheap milk
1
tortfeaser 12:15 pm
31 Aug 16
#

This is not a difficult problem.

There is a global market for milk.

Milk processors can choose to either sell into the global market (for example by turning fresh milk from the farmer into milk powder) or to sell fresh milk to retailers for them to sell. The price farmers are paid is in $ per kg of milk solids.

Farmers choose to sell their milk to a milk processor (like Murray Goulburn, or Fonterra, or Bega, or Warnambool). They agree terms with the milk processor. Sometimes, those terms are such that the farmer gets paid a fixed price for their milk (to help them plan the year ahead) instead of a varying price based on the world price. And if the world price is less than that fixed price, they settle up the difference at the end of the year (or get a windfall if the prices are the other way around).

This is what happened with Murray Goulburn (and Fonterra, because Fonterra’s deal is to meet a benchmark of the best paying Vic processor). Murray Goulburn had inflated the up-front price paid to look good to investors (dividends are linked to price paid). And farmers didn’t keep up with the global price and made their forward planning based on the inflated up-front price. They didn’t see the hammer on its way down and didn’t foresee that when it came to settle up that they have to repay the difference between the up-front price and the market price.

Who’s fault is it? Farmers didn’t see the obvious and processors didn’t keep farmers appraised of what’s happening in the milk market. Nothing to do with supermarkets.

Why has the global price fallen? Two reasons are that demand from China is lower because they’ve stopped allowing so free import of infant formula and Russia has stopped importing EU milk, so EU milk is on the market.

What does that mean for you in the supermarket? The price paid by retailers to processors has nothing to do with the price processors pay farmers. If you pay more in the supermarket, you aren’t helping a farmer. You’re helping the processor and the retailer.

Coles and Woolies use milk as a loss-leader to get you past all the other stuff on shelves on your way to the fridges up the back. Just because you paid $1 a litre doesn’t mean farmers cop it in the neck. That price you pay doesn’t have any bearing on what processors pay.

Remember, if processors don’t like the deal offered by retailers, they can sell milk powder into the global market or ice cream or cheese or butter or yoghurt to you.

So this nonsense about paying more for milk to help farmers is just that. All you’re doing is taking money out of your pocket that you could have spent on other things. You’re paying for a good feelings only. If you think those feels are worth it, go nuts. But don’t stand for the populist nonsense that drives dodgy public debate that’ll end up with stupidity in the form of a floor price for retail milk.

2
Maya123 12:48 pm
31 Aug 16
#

Bega Valley dairy farmers was/is paying more to farmers. They apparently supply Canberra milk. However it is possible they have now reduced the money they pay too. Does anyone have an update on this?
http://www.abc.net.au/news/2016-06-05/dairy-farmers-bracing-for-milk-price-cuts/7477454

3
pajs 1:15 pm
31 Aug 16
#

Another option is to sidestep the main milk supply chains. Decent smaller supermarkets around Canberra (or the markets) will have tasty milk from smaller dairies (organic and non). You pay a bit more than for cheap milk, but smaller dairies selling more directly through shorter supply chains offer a better chance of putting decent money back in the pockets of farmers. The Pines, out of Kiama, is one such producer retailing in Canberra, but there are others too.

4
Maya123 1:26 pm
31 Aug 16
#

pajs said :

Another option is to sidestep the main milk supply chains. Decent smaller supermarkets around Canberra (or the markets) will have tasty milk from smaller dairies (organic and non). You pay a bit more than for cheap milk, but smaller dairies selling more directly through shorter supply chains offer a better chance of putting decent money back in the pockets of farmers. The Pines, out of Kiama, is one such producer retailing in Canberra, but there are others too.

Unfortunately not all organic suppliers supply skim milk.

5
madelini 2:19 pm
31 Aug 16
#

I tend to shop between one or two brands; I’m a bit picky when it comes to milk, and while I should probably give more consideration to the farmers, for me, flavour comes first. I don’t drink much of it (and would thoroughly appreciate it if we operated like the UK, where you can buy a pint of milk instead of the smallest being a litre), so I buy the smallest bottle in either skim or Shape variety that has the longest expiry. I don’t always have the money for ethics.

6
devils_advocate 3:33 pm
31 Aug 16
#

tortfeaser said :

If you think those feels are worth it, go nuts. But don’t stand for the populist nonsense that drives dodgy public debate that’ll end up with stupidity in the form of a floor price for retail milk.

Could not have said it better myself. What I wonder is, why don’t they turn all their milk solids into powder and put a ridiculous markup on it and market it as a protein supplement? Whey protein frequently sells at multiples of other milk products with comparable protein values.

7
creative_canberran 5:14 pm
31 Aug 16
#

tortfeaser said :

This is not a difficult problem.

There is a global market for milk.

Milk processors can choose to either sell into the global market (for example by turning fresh milk from the farmer into milk powder) or to sell fresh milk to retailers for them to sell. The price farmers are paid is in $ per kg of milk solids.

Farmers choose to sell their milk to a milk processor (like Murray Goulburn, or Fonterra, or Bega, or Warnambool). They agree terms with the milk processor. Sometimes, those terms are such that the farmer gets paid a fixed price for their milk (to help them plan the year ahead) instead of a varying price based on the world price. And if the world price is less than that fixed price, they settle up the difference at the end of the year (or get a windfall if the prices are the other way around).

This is what happened with Murray Goulburn (and Fonterra, because Fonterra’s deal is to meet a benchmark of the best paying Vic processor). Murray Goulburn had inflated the up-front price paid to look good to investors (dividends are linked to price paid). And farmers didn’t keep up with the global price and made their forward planning based on the inflated up-front price. They didn’t see the hammer on its way down and didn’t foresee that when it came to settle up that they have to repay the difference between the up-front price and the market price.

Who’s fault is it? Farmers didn’t see the obvious and processors didn’t keep farmers appraised of what’s happening in the milk market. Nothing to do with supermarkets.

Why has the global price fallen? Two reasons are that demand from China is lower because they’ve stopped allowing so free import of infant formula and Russia has stopped importing EU milk, so EU milk is on the market.

What does that mean for you in the supermarket? The price paid by retailers to processors has nothing to do with the price processors pay farmers. If you pay more in the supermarket, you aren’t helping a farmer. You’re helping the processor and the retailer.

Coles and Woolies use milk as a loss-leader to get you past all the other stuff on shelves on your way to the fridges up the back. Just because you paid $1 a litre doesn’t mean farmers cop it in the neck. That price you pay doesn’t have any bearing on what processors pay.

Remember, if processors don’t like the deal offered by retailers, they can sell milk powder into the global market or ice cream or cheese or butter or yoghurt to you.

So this nonsense about paying more for milk to help farmers is just that. All you’re doing is taking money out of your pocket that you could have spent on other things. You’re paying for a good feelings only. If you think those feels are worth it, go nuts. But don’t stand for the populist nonsense that drives dodgy public debate that’ll end up with stupidity in the form of a floor price for retail milk.

You didn’t watch Four Corners did you.

8
Mordd 8:30 pm
31 Aug 16
#

If someone could present a convincing case around a specific brand or two in regards to a higher return to the farmer, then I would only buy that brand every time. I used to buy the cheap milk till I realised what was really going on, but I am just as confused each time about which other brand to buy instead, so I do chop and change a bit atm each time.

9
Paul Costigan 7:48 am
01 Sep 16
#

Thanks Mordd, that’s the question..

is there anyone with the answer?

What brand of milk (available in Canberra) delivers the most to the farmer?

10
nsee 8:24 am
01 Sep 16
#

Paul Costigan said :

Thanks Mordd, that’s the question..

is there anyone with the answer?

What brand of milk (available in Canberra) delivers the most to the farmer?

Tilba – available from the farmers market(s) and Kingston IGA. $3.50 for 1L and I think $6 for 2L. They also do skim milk.

Bodalla – available from a lot of IGAs – Kingston, Griffith (also Griffith butcher), I think Coles in the city too, but the money still goes to line their pockets in that situation. Same price as Tilba.

They’re both unhomogonised single dairy brands. If you want to drink even better, real milk, the health food shop in Griffith stocks a brand called Made By Cow. A NSW single herd (Jersey I think) – they figured out how to cold press milk rather than heating it to pasteurise it. It’s delicious, but still hard to make and supply so quite expensive ($6.50/1L). I buy it as a treat sometimes.

P.S hold back on the usual drivel about w$#kers and farmers markets. I’m not apologising for buying really good food at the same price (sometimes less) than the supermarket.

11
pink little birdie 9:13 am
01 Sep 16
#

How was there no option for – My milk habits have not changed – I continue to the same milk type thing.
It’s even why we stopped shopping at Woolworths back in the day when they stopped selling Canberra milk but the outrage was huge so they went back to selling full cream Canberra milk but not the other varieties. The butchers who then started selling Canberra milk made a motza from it.

12
tortfeaser 10:54 am
01 Sep 16
#

creative_canberran said :

You didn’t watch Four Corners did you.

I hadn’t before I wrote my comment. I’ve read the transcript now. Seems entirely in line with what I wrote, except that it seems Murray Goulburn had its head buried even further into the sand than I thought.

I don’t get why Murray Goulburn’s farmers thought they should be in such a different position to farmers supplying the other processors. The facts of the market situation for milk were well known–enough that some of those quoted in the 4Corners piece were making all kinds of enquiries of Murray Goulburn. But still they thought Murray Goulburn was a magic pudding and signed up. Nuts.

If the contract was uncertain perhaps MG can be estopped.

13
chewy14 1:37 pm
01 Sep 16
#

tortfeaser said :

creative_canberran said :

You didn’t watch Four Corners did you.

I hadn’t before I wrote my comment. I’ve read the transcript now. Seems entirely in line with what I wrote, except that it seems Murray Goulburn had its head buried even further into the sand than I thought.

I don’t get why Murray Goulburn’s farmers thought they should be in such a different position to farmers supplying the other processors. The facts of the market situation for milk were well known–enough that some of those quoted in the 4Corners piece were making all kinds of enquiries of Murray Goulburn. But still they thought Murray Goulburn was a magic pudding and signed up. Nuts.

If the contract was uncertain perhaps MG can be estopped.

C’mon, if it’s too good to be true, then sign me up.

Then when it falls apart, I can blame everyone else and expect the government/public to step in and save me.

Tried and true methodology for success.

14
scentednightgardens 8:23 pm
01 Sep 16
#

Paul Costigan said :

Thanks Mordd, that’s the question..

is there anyone with the answer?

What brand of milk (available in Canberra) delivers the most to the farmer?

Paul, since only 20% of the milk produced in Australia is actually sold as fresh milk in the shop fridge, with the rest turned into dairy solids (butter, cheese, powder) for consumption in Australia and abroad, buying boutique milk from select dairies is loaded with feel-good factor, but it wont make an impact on the industry bottom-line. What do you mean by ‘deliver the most to the farmer’? All farmers – or just some? Consumer boycotts of home brand milk make no sense – how does buying less milk increase industry revenues? Not everyone will substitute for boutique. Best plan is a) chuck some Coon into the trolley next time and b) have a chat to Vlad Putin about his food import ban.

15
gazket 8:40 pm
01 Sep 16
#

If milk prices are so low why are the Chinese who live or visit Australia cleaning out the shelves of powered milk at the supermarkets and sending back home to China ?

I believe a lot this pilfering of Australian domestic products goes on. The medicine market and Medicare pilfering alone is ginormous .

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