New South Wales is seeing some of the worst drought conditions in living memory ©AAP Image/PA Images
New South Wales is seeing some of the worst drought conditions in living memory ©AAP Image/PA Images

Dairy drought levy ‘puts squeeze’ on producers

29 October 2018

Supermarket chains Coles and Woolworths have been criticised for restricting a price increase for dairy farmer to supermarket own-brand milk products.

The retailers announced they would be adding a 10 cent “drought levy” – first suggested by the Queensland Dairyfarmer’s Organisation (QDO) – to help Australian dairy farmers in drought affected areas.

But industry and politicians have raised concerns its application to selected products could inadvertently squeeze suppliers not benefitting from the additional income.

Llew O’Brien, Liberal National Party MP for Wide Bay, Queensland, said the move “completely undermines” QDO’s proposal and called for a Royal Commission to investigate the practices.

Speaking in the House of Representatives last week, O’Brien said: “Coles’ and Woolworths’ decision to restrict the 10 cent drought levy to some of their private label milk completely undermines the Queensland Dairyfarmers proposal. The levy needs to go on all milk and the funds need to be paid through the process back to the farmers.

“I’m appalled by all of [the] nonsense that Coles and Woolworths have nothing to do with farmgate prices. Coles and Woolworths heavily influence the value of the supply chain. They slash the price of milk and cut the price they pay processors. Their actions force processors to cut the price they pay to farmers.

“It also puts the squeeze on branded milk to be competitive with supermarket private label milk,” he added.

Coles told SM it had committed to more than $12m in drought assistance in all sectors across Australia and said 100% of the money raised through its drought levy would go to dairy farmers “regardless of their location or the processor they sell their milk to”.

It added: “Based on data from Dairy Australia, a 10 cent per litre levy on all fresh milk would cost Australian consumers $250m a year – a cost that would fall disproportionately on the 40% of households who have only $150 a week to spend on their weekly grocery shop.”

Woolworths said it understood the levy would not “fix the broader structural issues” in the industry, but said it was providing “much needed relief from the effects of drought while government and industry work through the reforms needed to sustain the sector longer term”. It added more than 280 farmers across Queensland, New South Wales (NSW) and Northern Victoria had received relief payments.

O’Brien’s intervention comes as the parliament of NSW launches an inquiry into the sustainability of the dairy industry.

Chaired by Robert Brown, of the Shooters, Fishers and Farmers party, the inquiry will look at the nature of the value chain and the relationship between farmers, processors, logistics companies and retailers and their respective influence on price.

It will also look at the impact of external influences, including drought, water, energy and price-setting.

The inquiry will be taking submissions until 5 November and is expected to report by 14 December.

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