Why $1/litre milk is killing Qld’s dairy industry

Speaking at Queensland Country Life’s Food Heroes event hosted by the Platell family on their Urara dairy farm south of Beaudesert, Mr McInnes said northern producers were facing an uphill battle to survive because of increasingly unsustainable returns.

Despite a massive shortfall in Queensland’s fresh milk production compared to consumption, processors’ needs were being met by production from southern Australia.

Mr McInnes said attempts to introduce laws enabling ‘fairly priced’ Queensland milk to be promoted at the retail level had been rejected by parliament. A plan B was in now play to encourage more consumers to recognise the importance of paying more for branded milk.

“Everyone who has had anything to do with it knows the fact is $1/litre milk controls the market,” Mr McInnes said. “If branded milk rises in price, it loses market sales. As soon as the price of branded milk goes up people go back to $1/litre milk. That’s a sad fact of life.”

Coles was the first supermarket to introduce $1/litre milk in January 2011. It was soon followed by Woolworths and other retailers who were forced to introduce the loss-leading, but dairy industry destroying, practice in the ongoing battle for the consumer dollar.

Mr McInnes said using a notional breakup of a dollar, 58c went back to the farm, 37c went to the processor, which supermarkets left only 5c, when their real costs were in the 25c-27c/litre range.

“So the price is sitting here and cannot move because there are contracts in place for the next six or seven years,” Mr McInnes said. “I have no doubt retailers will have every expectation that $1/litre milk will continue.”
However, inflation meant farmers’ 58c would be worth the equivalent of only 41.4c at the end of the same time period.

“That is based on the 2.3pc inflation rate of the past six years,” Mr McInnes said. “The industry is suffering about a 1.3c/litre decline in terms of trade each year.”

He said a major problem was the lack of reinvestment back into farms. “The reinvestment is just not happening,” Mr McInnes said. “When the proverbial hits the fan – a flood, a drought or the big tractor blows up – it all comes to fruition.”

Two major inquiries are currently underway into the dairy industry. A Senate committee is expected to report as early as this week. The findings of a more critical ACCC inquiry is expected to be handed down in November.

The story Qld’s $1/litre milk dilemma first appeared on Queensland Country Life.

Source: North Queensland Register

Link: http://www.northqueenslandregister.com.au/story/4664687/qlds-1litre-milk-dilemma/?cs=4745

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