Coles recently announced it will sell milk for $1 a litre and now a bunch of politicians are sooking that it’s going to destroy the dairy industry. Nick Xenophon announced a parliamentary inquiry today:
“I understand that consumers want cheap milk. But if cheap milk in the short term means the destruction of our dairy industry in the long term, ultimately consumers will suffer.”
I don’t think Xeno has thought this one out. The retail price of milk has no direct impact on farm gate prices. I don’t see why dairy farmers would care if Coles decided to sell the milk at 20 cents, or give it away for free, or pour it down the drain.
It’s not just Xenophon who doesn’t have his thinking cap on. Opposition agriculture spokesman John Cobb got quite emotional, accusing Coles executives of being “quite happy to get their bonuses over the dead bodies of farmers”. Greens Senate leader Christine Milne reckons “It’s time Australia’s dairy farmers saw something being done to protect their livelihoods.”
Possibly their reasoning is that if Coles cuts its retail price it will need to extract a better price when they negotiate with farmers. But that doesn’t make sense either. Price is determined by prevailing market conditions: demand and supply. Coles doesn’t improve its bargaining position by dropping its retail price.
Maybe they’re confused and they actually want to protect small retailers from the competition. But that doesn’t make much sense either. Small retailers don’t make that much money on milk. They provide it as service to customers who they hope will fill up their trolley with more expensive items. I doubt 7/11 owners will mind too much if Coles sells cheap milk because they’re not really competing in that market. They provide convenience and long trading hours and nobody’s going to stop going to the 7/ll because their milk is a few cents dearer than Coles.
So maybe it’s about protecting Woolies. Woolies stand to lose the most if shoppers switch to Coles instead because they get cheaper milk. So maybe the whole thing is a ruse to prevent our two major retailers from having a little price competition. Or maybe everyone involved with this is just a complete moron.