Farmers stand alone in fight

Spilt milk: Dairy farmers do not have the clout of Foster’s.

In mid-March Foster’s Group quietly ceased shipping beer to a number of retailers and instantly became the hero of farmers around the country.

Normally this would have made Foster’s in breach of contract with the retailers. However, under section 98 of the Competition and Consumer Act 2010, Foster’s was entirely within its rights as those retailers affected had in the preceding 12 months sold its products at less than cost.

A few days later, without any fuss, formal comment or explanation, the company returned to its normal supply routine and released a demure comment to the media to explain its position.

“We seek to build strong and lasting relationships with retailers that respect our brand,” Foster’s Group spokesman Troy Hey says. “We haven’t taken these decisions lightly and we are taking these measures to protect our brand equity.”

The move in effect put retailers on notice that Foster’s Group was prepared to defend the integrity of its brands and to take action against retailers that undercut its brand equity in any way.

The contrast with the noisy, but as yet fruitless, campaign of the dairy industry against the major retailers Coles and Woolworths, couldn’t be more stark.

Coles cheerfully announced its intention to drop the price of its home-brand milk by 33 per cent on January 26, bringing the retail price down to $1 a litre.

The dairy industry responded immediately. Brian Tessmann, the president of the Queensland Dairyfarmers’ Organisation, accused the retailer of “kicking family farmers when they are down” and within a fortnight a Senate committee was created to examine the impacts of supermarket price decisions on the dairy industry.

The committee is now considering 148 submissions and is due to hand down its recommendations on April 20. However, this is unlikely to have any impact on farmers’ ability to stand up to large retailers. After all, less than 12 months ago a Senate inquiry into competition and pricing in the dairy industry titled Milking it for all it’s worth made 15 recommendations aimed at providing dairy producers with a greater control over pricing mechanisms, apparently to no avail.

“The reason why Foster’s can invoke the Competition and Consumer Act and restrict supply, while dairy can’t, is that Foster’s is a single company with very tightly controlled supply chain, so it’s easy for them to prove when their products are being sold at below cost,” says Frank Zumbo, associate professor for competition and consumer law at the University of NSW. “The second reason is that Foster’s is a powerful corporation with a powerful brand that owns a significant sector of the market.”

The dairy manufacturing sector, which takes the milk from the farm gate and turns it into branded products, is undergoing a process of rationalisation.

The farmer-owned co-operatives that once dominated the sector now account for less than 40 per cent of the market, as most were commercialised or sold to large multinational chains. While this commercialisation has enabled the sector to invest in technology and lift its productivity, it has also largely severed the link between milk producers and the brands under which their milk is sold.

To invoke section 98 of the Competition and Consumer Act 2010, data regarding exact pricing and processing costs would have to be gathered from dozens of different suppliers and even if they were able to establish a price, they would then run the risk of facing prosecution for anti-competitive behaviour.

“The main problem is the farmers and the milk producers are fragmented, so they can’t operate like a single company,” Zumbo says. “If they did get together and organise a boycott they might be breaking the law.”

In fact, the 2010 Senate inquiry into milk pricing highlighted this challenge and called for mechanisms to ensure a more equitable balance of power between the negotiating parties in the dairy supply chain. But this on its own will not be enough to provide farmers with more control over their pricing and products on the local market.

The current Senate inquiry will no doubt again demonstrate that the challenge facing the dairy industry is well understood. Whether it leads to the creation of mechanisms that enable agricultural producers to take some control over their supply chain and pricing remains to be seen.

BRW

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