A key finding of the ACCC’s Dairy Inquiry was that almost all contracts for the supply of private label milk allow processors to pass-through movements in farmgate prices to supermarkets. In addition, farmers are paid the same price irrespective of whether their milk goes into private label or branded products. These findings were based on detailed evidence provided by supermarkets and processors.
“Dairy processors need to be honest with farmers. We have written to a number of processors warning them not to mislead farmers by blaming private label milk contracts for the prices offered for milk at the farmgate,” ACCC Chair Rod Sims said.
“We’re concerned this is misleading as the power lies with processors to raise the farmgate price paid to farmers, and then pass these higher farmgate prices on to supermarkets.”
“Almost all contracts between processors and supermarkets for the supply of private label milk allow processors to pass-through movements in farmgate prices to supermarkets. This means processors set their farmgate prices independent of the supermarkets’ retail prices,” Sims said.
The ACCC said it has heard reports from dairy farmers in NSW and Queensland who are struggling to cover costs in the face of drought conditions.
These reports allege processors say they cannot pay farmers more for their milk because of the low A$1 (US$0.72) per liter price for private label milk. Given the existence of these pass-through clauses, the ACCC said, this is not correct.
The milk supply chain works by farmers selling their products to dairy processors who process and package the product. Supermarkets then buy the packaged milk from the processors, both private label and branded products, and sell it to consumers.