JACKSON HEWETT: ACCC says there’s no price gouging. So why have 80% of dairy farmers left the industry?

The Australian Consumer and Competition Commission, which took 12 months, 10 days of public hearings, three months of supplier round tables and more than 90 submissions, has determined that, ‘nope, nothing to see here, the supermarkets are just doing what oligopolists do, but competition is still robust enough to ensure customers aren’t getting fleeced’.

Case closed.

The inquiry, which began with all the smoke and fury of the Salem witch trials, was timed to shift the blame away from Labor for the cost-of-living crisis, and the ACCC has completed their brief of getting the Government off the hook.

The report concluded that 24 per cent increase in the price of food over the five financial years leading up to the report, was due to the increase in costs to suppliers and broadly equivalent to the 22 per cent rise in goods and services across the country.

The supermarkets, who had appeared to have completely torched the trust placed in them by consumers during COVID by jacking up the price of goods in the aftermath, were found to have not been squeezing customers. Instead, the ACCC found, supermarket upped their margins, but not by much, 1.5 to 2 per cent on average across the grocers.

The cost of living pain, by contrast, was due to the fact that prices rose at twice the rate of wages.

Hard-hit customers fled to home brand products or to Aldi, with the German retailer representing the most important brake on the duopoly of Coles and Woolies.

Despite accouting for just 9 per cent of grocery sales, Coles and Woolies — who account for two-thirds — kept a constant watch on Aldi’s prices. Aldi’s presence in the market has kept prices from inflating further out of reach.

Under pressure for consumers feeling the pinch, under scrutiny from the ACCC and the Government, the supermarkets did what any normal business would — put the heat on suppliers to limit price demands.

Fresh food producers were among the few suppliers willing to speak publicly about what they went through.

“What is clear reading the report is that the relationship between supermarkets and fresh produce suppliers has been unfair, and too often exploitative and abusive,” said Jolyon Burnett, chair of the National Farmers’ Federation Horticulture Council.

“Sometimes you need to hear from an impartial observer, outside a relationship, before you realise the extent to which it’s been unhealthy.

“We hope more than anyone, that supermarket senior executives and boards sit with this report, absorb its findings and conclusions, and use it to proactively turn a corner in terms of their practice and culture.

The fruit and veg guys are more bolshie because there are more of them dealing direct with the supermarkets.

The dairy processing sector, another effective oligopoly, mostly dominated by foreign owners, can’t afford to get the supermarkets offside.

But dairy farmers are screaming for help.

While the ACCC clears the major grocers of price gouging, its findings do little to address structural problems plaguing Australia’s dairy sector — a sector that has shed tens of thousands of family farms, watched its national milk pool shrink, and is being undercut by a flood of cheap imported products.

In the past decade alone, dairy imports have surged to become 25 per cent of total consumption. In 2023, imported butter hit a record 47,000 tonnes, up nearly 70 per cent compared to five years earlier. Cheese imports tell a similar story, climbing to over 110,000 tonnes last year, their highest levels ever recorded. Most of it comes from Europe and New Zealand, while American farmers, supported by the US Government (surprise, surprise) are a leading importer of Mozzarella that goes onto Australian pizzas.

As supermarkets increasingly stock cheaper imported cheese and butter, they put more pressure on processors to get their costs down.

Domestic cheese and butter, which helps absorb excess milk produced on the mostly seasonally rain fed dairy farms is now getting priced out of the market.

Processors then force farmers to supply the same quantity of milk year round for fresh milk, which means farmers have to change the cycle of production from grass fed, to feed that is bought in, forcing up production costs.

It’s a vicious cycle that compounds the already parlous state of the dairy industry.

Since the 1980s the number of dairy farms has plummeted from over 20,000 to 4000, accelerated by the the deregulation of the dairy sector, and specifically the introduction of $1 per litre milk. As a result farmers have been leaving in droves.

The old cooperatives, which were the backbone of industry have been sold off and are now majority owned by foreign firms, with ASX listed Bega one of the few local players.

Smaller players can’t compete with the capitally intensive production requirements to get margins as razor thin as possible.

In the past two-and-half years 15 separate dairy manufacturers have shut down, from ASX-listed Bestons in South Australia, to the iconic King Island cheese, which has bounced from foreign owner to foreign owner before going into administration.

Each time one of these players shuts down, one fewer destination for a farmer’s milk, and one fewer competitor on price is left.

The supermarkets have been getting into the game as well. Coles and Woolies have both bought processors, and pay a better price to farmers by cutting out the middle man, but that also gives them more leverage over their suppliers.

Inquiries into consumer price gouging do little to help.

Recognising they were under fire, supermarkets leaned on processors to push the farm gate milk price down 15 per cent. Lo and behold, shortly after, the price of milk in aisles was back down towards $1 per litre.

Ben Bennett, a dairy farmer from south-west Victoria and president of Australian Dairy Farmers can see where it all ends.

“We, as a primary producer, understand being on the bottom end of the pyramid,” he said. “But supermarkets are now in a position to manipulate the other processors to say, ‘here is the line in the sand on price, and we’ve got leverage because we produce our own milk.’

“We just have to take the crumbs we get. But the thing is, sooner or later, there just won’t be any of us left. And that’s a bit of a sad situation, for Australia, a continent, that can’t even produce its own bloody milk for a cup of tea, or a bit of cheese for a sandwich. Like, that’s a bit rude, isn’t it?”

It’s a bit rude, that dairy, Australia’s third largest rural industry, generating $6 billion annually and employing more than 70,000 people is trapped in an existential crisis at a time when the country is crying out for new sources of income as the rivers of iron ore gold run out.

Years ago, Queensland went from being one of the largest dairy regions in the country, to now reliant on milk trucked up from Victoria.

That is a prospect facing the rest of Australia if this issue can’t be resolved, except this time it will be New Zealand milk entering the country in UHT containers.

Already a third of dairy farmers say they are thinking about leaving the game putting the dwindling milk supply further at risk.

A highly enterprising young female dairy farmer, who asked not be named, said with the milk price continuing to decline, the economics no longer stacked up. None of the young people in her district could afford to buy their parents or their siblings out.

“If the milk price drops again next season, as me and my husband have been champions for the dairy industry, we’re also about business and profit and growing, we can’t grow at the current milk price, yeah? You’re only treading water,” she said.

The ACCC report will be tabled by Labor as a win for the consumer, and has already been seen as a win for the supermarkets with Woolies is up 6 per cent today.

The suppliers have a measly $2.9m to help them negotiate better prices but the problem starts at home.

While you stock up on imported butter and cheese, just remember you are sowing the seeds for the next price crisis. One where imported dairy will skyrocket during the next supply chain disaster.