When supermarket chain Coles lowered the price of its home brand milk to $1 a litre, their main competitor Woolworths soon followed. This led to a Senate enquiry into milk prices and sparked a furious debate in the media over who was ultimately to fund the cost of the milk ‘price war’. Would it be the big supermarkets, the milk processors, the dairy farmers or would consumers end up covering costs elsewhere?
Far from having the interests of ordinary people in mind, the price cut was merely a shameless attempt by the major supermarkets to increase their share of the market for their in-house brand milk and consolidate the oligopoly they already hold over food distribution.
Coles and Woolworths currently control about three quarters of all supermarkets in Australia. Many commentators have criticised Coles and Woolworths for ‘abusing’ their market power, and have asked why the Australian Competition and Consumer Commission (ACCC) has failed to act. The real question is why are these unelected profit hungry companies allowed to have so much influence over our lives, controlling something as important as food production and distribution?
Most people have welcomed the price cut but want to know who will end up footing the bill. Coles has claimed that they will absorb the cost of the price cut but farmers are asking for how long? It seems that Coles and Woolworths are already attempting to push the cost down the line to milk processors and farmers. It has also been suggested that the big supermarkets are just raising the prices of other goods in order to cover the costs of cut price milk.
Milk processors are claiming that the cut will eat into their profits and they will be forced to “act in a commercial way to leverage a return”. In other words this means they will slash the already low price of milk paid to farmers. The other threat at hand is that processors will shift to cheaper transport and attempt to cut labour costs in order to protect their profit margins. This will only raise the likelihood of more instances of contamination and traffic accidents.
The Senate enquiry heard from the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES). ABARES said that the average price farmers receive for milk in northern NSW and Queensland was 46c a litre. The costs of production when labour and depreciation are factored in actually amounts to 50c a litre! This shows how the big supermarket chains make millions in profits at the expense of smaller producers.
David McKinna, an agricultural consultant, correctly pointed out that supermarkets like Coles “have got the power to do things that governments can’t do. They can do a lot of damage, there’s no doubt about that.” While the ACCC has said it is “too early” to judge the effects of the price war, what this debate has clearly revealed is the archaic nature of food production and distribution in Australia under the profit system.
In a sane society basic necessities like milk and food would be produced on the basis of need not profits. Rather than allowing a few big businesses to dominate, the major food production and distribution enterprises would be publicly owned and democratically controlled. On this basis prices would reflect the actual cost of production and not what the likes of Coles and Woolworths think they can get away with charging.
Last year Coles alone announced profits of $1.6 billion. On the basis of public ownership and the removal of the profit motive food prices across the board could be reduced and the wages of workers and small farmers could be increased dramatically. This would be the best way to ensure that a trip to the supermarket doesn’t produce a massive hole in our hip pockets!
By David Suter