Kleptocracy and the Dairy Farmer: A Morality Tale for All Food Producers

ACCUSATIONS that Australia’s two grocery giants, Coles and Woolworths, engaged in improper practices to force down prices from suppliers are being investigated by the nation’s most powerful competition regulator.

The head of the Australian Competition and Consumer Commission, Rod Sims, will investigate the two retailers – which between them control an estimated 70 per cent of the nation’s grocery spending – about potential breaches of the law and bullying tactics against food and grocery suppliers.


Suppliers have been complaining for years that the two supermarket chains, which last year booked combined revenue of more than $70 billion from their Australian stores, were using market power to bully them over prices and supply.

The ACCC chairman is investigating allegations that include:

•persistent demands for additional payments from suppliers, above and beyond that negotiated;
•the imposition of penalties that did not form part of any negotiated terms of trade;
•threats to remove products from shelves or otherwise disadvantage suppliers if claims for extra payments or penalties are not paid;
•failure to pay prices agreed with suppliers;
•discrimination in favour of homebrand products.

PUB patron Janice, a lady with deep personal knowledge of dairy farming, agreed to write about the dairy industry as a case study of what happens when the big end of town decides to cream off the profits. Many thanks, Janice!

Kleptocracy and the Dairy Farmer: A Morality Tale for All Food Producers

Rule by thieves has always been part and parcel of life on the land. Scavengers and hangers-on abound in all types of farming. Consumers, who are in turn fleeced by processors and retailers, are blithely unaware of the pitifully low farm gate price and no doubt think the farmer is wallowing in riches. They can be excused for coming to this conclusion, given the prices they pay for farm products in the supermarkets.

There was a time when dairy farms were small operations run by families who eked out a modest living on the land. They milked thirty to fifty cows twice a day, 365 days a year, ploughed and planted their fields to provide the necessary green feed and/or crops for year round milk production. Most dairy farmers also kept pigs to send to market to supplement the milk income. Pigs were fed the waste milk such as colostrum not required for the heifer calves being raised as herd replacements, and any fruit, vegetables or grain that would otherwise be wasted.

In NSW these family farms were rigorously controlled by State Government Inspectors and their milk product tested daily for quality and the premises checked on a random basis for maintenance. In the 1970s, a quota system was functioning. Farmers purchased a quota of X amount of litres of milk for which they were paid a higher price than for “processing” milk which was whatever they produced above their quota, known as “surplus” milk. Farmers were penalised if, even under circumstances beyond their control, they did not meet their quota, or if, again because of circumstances beyond their control, their milk butter fat dropped below the stated quality levels. The penalty was harsh as it often meant the farmer’s milk was condemned and declared to be “surplus” quality for which he was paid less than half the price of his quota milk.

Farmers were agitating for a rise of the farm gate price of their milk. Their costs of production were rising but the government declared that as milk was a staple food, consumers could not be asked to pay more. What wasn’t said was that it wasn’t in the government’s re-election interests. The Dairy Farmer’s Association continued with robust lobbying and finally demanded the government set out their reasons in writing for not granting the farmers a price rise for their product. When the reasons were finally given, the whole dairy industry was gobsmacked.

Despite detailed submissions of individual farmers’ incomes and details of the production costs, all the DFA got was “NO”. Now the DFA had, in writing, the “costings” the government were basing their refusals upon. The dairy farmer’s wife was listed as a “cost” for the princely sum of $1 per day, and all hell broke loose. Who the hell would milk cows twice a day, raise the calves, share the ploughing/planting and other farm chores, for a dollar? – not this bluddy woman, they cried.

Well, the government rolled over and the farmers got their price rise – 1c per litre. But that 1c per litre was spread over the whole industry, i.e. processors, vendors and the milkman. The farmer ended up with 0.1c but it was the start of fairly regular price rises and things were looking up for the poor old dairy farmer as he struggled to make ends meet. Then it all went pear-shaped as rumbles of deregulation began to sound all over the country.

Victorian dairy farmers supplied the export market and the bottom fell out of it. Victorian farmers were seasonal milkers – they dried off their herds at the end of summer and resumed their operations in spring. Most of the farmers in Victoria were “owned” by Coles, as it owned the processing plants that paid the farmers. They were desperately seeking a new market and I suppose it was inevitable that Coles would cast their eyes across the border and send their milk into NSW. Naturally, NSW farmers and their Association objected to such an intrusion, especially as the volume of Victorian milk coming in threatened the stability of NSW price structures which covered the higher production costs in the winter months.

The dispute quickly became out-and-out war. Farmers rallied and protested outside Coles supermarkets or any shop which stocked Victorian milk. The farmers won the first battle but lost the war when Coles went to court on the Constitutional ground that state borders cannot be closed to trade between states. While all the court argy bargy was going on, Coles were busy buying out dairy farmers co-operatives which owned the processing factories. Farmers countered this by co-operative mergers to enable them to compete. It worked for a couple of years but the smell of deregulation was still in the air.

Deregulation started with the Kerin Plan in 1986, and was fully in place in 2000 in response – according to Dairy Australia

to the acknowledgement that prices needed to fall. Farmers received $1.73 billion for restructuring and as a result of deregulation the number of dairy farms has fallen from 12,500 to 7,500. Since deregulation the prices that farmers receive are governed by the free market.

And we all know what that means. On Australia Day 2011, Coles fired the first shot in the milk price wars, selling supermarket-brand milk at $1 a litre. Woolworths promptly reciprocated, and within a fortnight the effect of this battle on the dairy industry had been referred to the Senate Economics Committee. In its final report, released on 3 November 2011, the Committee in its Summary and Recommendations (this is a BIG file) had this to say about the impact on dairy farmers:

It is apparent that when looking at the dairy industry at a national level, most dairy farmers will not be significantly worse off because of the price cuts. This is because the vast majority of milk production occurs in states such as Victoria where a number of processors operate and drinking milk represents a relatively small share of production, compared to the production of manufactured dairy goods. Due to significant export opportunities, international prices are a key determinant of the income farmers in those areas receive.

However, it is clear that in states which do not have these characteristics, such as Queensland and Western Australia, the impact is potentially greater. In these states, there are few processors operating and milk production is primarily for drinking milk. The emphasis on drinking milk means any pressure on retail prices could potentially be pushed back down the chain, although at this stage there is no evidence the major supermarkets have done this. Additionally, in some areas it is also difficult to distinguish between the consequences of natural disasters, such as the Queensland floods, and the impacts of the discounting.

One key area of concern for the committee, however, was the speed and ease with which a certain group of farmers in Queensland contracted to Parmalat were affected by the cuts in the retail price of private label milk led by Coles. Under these arrangements, it appears the risk of any retail price movements or other shocks that affect the sales of branded products are in large part being passed immediately onto the farmers. It is not clear why this should be the case when the processor has chosen to supply both products to the supermarket. Whether a consumer chooses to buy a bottle of processor-brand milk or the supermarkets’ private label should not (again, as a matter of principle) be a concern for farmers. Although processors are undoubtedly in a challenging position, the management of their branded products and the terms on which they supply private label milk to the supermarkets is a matter for them.

The non-Government Senators (Xenophon, Williams, Heffernan, Madigan, and Milne) made several “additional” recommendations, including this:

That the Federal Government extend the Australian Consumer Law framework dealing with unfair contract terms to business to business agreements involving small businesses and farmers.

The Federal Government’s response to this recommendation was:

The Government notes the recommendation

The Government introduced laws dealing with unfair contract terms which took effect at the Commonwealth level on 1 July 2010 and have been in place in the laws of all jurisdictions from 1 January 2011, as part of the Australian Consumer Law.

The Government notes that these provisions have only been in place for a short period of time and that, should extension of the provisions be considered in the future, careful consideration would need to be given to the costs and benefits of doing so.

(Emphasis added.)

It will be interesting to see whether the revisions to unfair contract terms are of assistance to the ACCC in its current investigations.

1,460 thoughts on “Kleptocracy and the Dairy Farmer: A Morality Tale for All Food Producers

  1. BB. The entire policing authority in this nation has too close connections w/ LNP. sentiments. Don Dunstan had the same troubles in SA….Take the “Lawler” family connections for example. Just how much influence have THEY exerted?….Brandis has way too much “conversation” w/certain quarters in the authorities.
    There is this “Aura” of subordinate servitude about the senior officers when they are interviewed on tele. One has to ask..: “What price the epulettes and baubles?”…..one wonders what happens to the braided cap when the rest of the uniform goes into the wash?

  2. ForeverJanice wrote “The stink is coming from the AFP basement where it shelves anything that might be harmful to the Coalition.”

    But why?

    Who is orchestrating what is disgraceful behaviour?

    The AFP would be in Jason Clare’s Home Affairs Ministry, would thry not. Why doesn’t he do a Lionel Murphy and put a bomb up their nether regions?

  3. On the ABC….I always wondered why Michael Brissenden wasn’t promoted from Kerry O’Brien’s Lateline instead of that “candle-wick” Uhlmann!
    Also why Alberichi took over from several more legit women presenters.
    Leigh Sales is more one of those “wear-em-down” women over Uhlmann….as for HIM..I wish he’d get some botox done to stop his face tightening into a refluxing sphincter when he scorns the Labor Party.

  4. Just WHAT is Katharine Murphy trying to say?

    On the one hand, Gillard visiting Western Sydney is…

    An eminently sensible and uncontroversial idea practised by all who inhabit politics, go out and communicate in marginal seats you want to win – that has somehow spiralled into a circus of finger-pointing vox pops


    And on the other, Murphy asks…

    … a couple of questions.

    Do we really want a repeat of the 2010 federal election campaign? Does politics want a repeat of that campaign?

    Western Sydney/ Asylum seekers are a big, big problem/Particularly in western Sydney/Big, big problem/What have the Romans done for me lately?

    Snarling. Confecting differences. Narrowcasting. Politics of the zero-sum game.

    So what is the visit to Western Sydney?

    “Eminently sensible” or “Politics of the zero-sum game”?

    Or is this “balance?

  5. If PMJG continues in this vein through to Sept 14 she will romp it in. She is looking relaxed and showing all the charm and charisma those who’ve met her know she possesses. The image she is presenting at the moment is enough to charm the birds from the trees and Abbott looks the pig’s bum that he is.

  6. BB,

    Don’t what she is trying to say but it is obvious that she is very worried that the PM is too relaxed and confident enough to charm the people on whom Abbott has spent three years installing hate blinkers.

  7. And still Katharine Murphy avoids writing about policy. Better to just label and point the finger. What an asset she will be to The Guardian!

  8. Good afternoon everybody.

    Apologies for the late arrival: OH and daughter left the house at 3am to get her to the airport; OH returned a bit after 4am, so it was a rather disturbed night.

    When I eventually surfaced, it was to find that OH was installing my new computer, so I have only had access to the www for an hour, and am still finding my way around. However, the new browser is bliss, and I can now work the OLDER/NEWER COMMENTS icons without any trouble!

    Thank you for all the links everybody – lots of happy reading this afternoon.

  9. I do hope the Guardian is watching the efforts of Katharine Murphy pretending to be a journalist. Surely having read her latest drivel they would seriously consider bringing out some of their better journalists from Britain and relegating Ms Murphy to “chief tea lady” or somesuch.

  10. Back from shopping and getting the Car checked for Rego. All clear! 🙂

    Well, it seems as though Scott Morrison has gone a Tom Ugly’s Bridge too far on asylum seekers. Only Russell Broadbent from his side of politics has had the guts to call him on it. However, if a journo, Nick MacCallum, is also raising his head above the Channel 9 parapet to express concern, maybe we have reached a turning point?

    I note the Gutless Wonder Stalker, Tony Abbott, could do no more than mouth his empty and meaningless slogan ‘I will Stop the Boats’ when asked by the journalists about Morrison’s dog whistle to the xenophobic bigots.

    The Prime Minister and the rest of the party have to start calling these guys bluff more often. Don’t just say “Whatever” to their antics, such as Abbott stalking the PM around Western Sydney next week, call it what it is, a desperate move by a desperate man who is afraid that if he doesn’t employ spoiler tactics she might just connect with the people and break the spell the Coalition, via their shills in the media, have cast over them.

    Might I also say that the PM dodged a bullet in Brisbane at the ABC, being interviewed by Steve Austin and not Madonna King. 🙂

  11. Jack Hawks,
    Katharine Murphy could very easily do what that other former political journalist at The Australian, Caroline Overington, has done, and go over to The Australian Women’s Weekly, or New(No) Idea, and fit in very easily, as all she seems to do is superficial analysis and reporting of what people are wearing and the like. Froth and bubble.

  12. Victoria,

    Perth has been her home base since 2007, though for how much longer we are not sure.

    OH and I will head over there in 2.5 weeks for her graduation. At this stage her new employer has indicated that she will be starting work in May/June, so she will probably return to Melbourne with us so that she can live rent- and board-free until she starts her brilliant career.

    The last few weeks have been really good. Of course there were a couple of moments when we growled at each other – too much alike, in both good and less desirable ways – but mostly it’s been a lot of fun, and she has been a huge support to me, thus removing some stress from OH!

    I’m sure that I will come to love the new computer dearly – at the moment a certain amount of “oops, I didn’t mean to do that!” is happening 🙂

  13. fiona

    Congratulations to your daughter on graduating. You must be proud.

    It is only natural to have antsy moments with your daughter. I am having those all the time with my brood!

  14. CAMPBELL Newman’s hand-picked top public servant is part-owner of a Queensland coal-seam gas services business with Sydney-based Australian Water Holdings, the infrastructure company linked to Labor powerbroker Eddie Obeid.

    Former state Treasury official and businessman Jon Grayson retained his 25 per cent stake of Gasfields Water Management Pty Ltd along with holdings in several other mining-related ventures after being appointed director-general of Queensland’s Department of Premier and Cabinet in March last year.


  15. Victoria,

    Thank you – I shall let her know. And of course I am a very proud mother – I’m particularly proud of her because she was brave enough to leave home after finishing school, move to a strange city on the other side of the continent, find a job, become self-supporting, and work her way through uni. Sure, we’ve been in the background and if she’s needed help she gets it, but effectively the past six years have all been done on her own.

    It has been a great experience for her: she has developed into a confident, feisty, gorgeous young woman. I wish I’d had the courage to do the same when I was 18.

  16. Barry Cassidy said on #Faine this morning that this Rooty Hill story is the biggest non story of 2013. No news so we get this for 3 days.

  17. I love the smell of burning Costigans in the morning…

    CAMPBELL Newman’s hand-picked top public servant is part-owner of a Queensland coal-seam gas services business with Sydney-based Australian Water Holdings, the infrastructure company linked to Labor powerbroker Eddie Obeid.

    Sinodinos, O”Farrell and now Jon Grayson.

  18. Victoria

    >i< {Barry Cassidy said on #Faine this morning that this Rooty Hill story is the biggest non story of 2013. No news so we get this for 3 days.}

    It does have some competition though. PM's glasses and Tim's poor joke would have to run close.

    Tony Abbott's reference for Father Nestor. Nah!

  19. Yes many thanks halloweenjack1. ….great interview from Mr Austin . I rang the 1300 number to tell them how refreshing it was to hear such an interview…..they were curious to know how I’d heard it seeing I do not live in QLD……thank goodness for the 5th estate !!

  20. Tony Abbott’s method of “Stop the boats”…is to latch himself on behind the boat, open his BIG,BIG mouth and act as a “water-parachute” !

  21. Penny throwing down the gauntlet by committing to release confident fiscal position figures well before the election and challenging the Opposition to get their policies in for proper costing.

  22. Sen Payne tries them all. 1st question the Rooty Hill comments from Mark Bishop, Q2 staying at Rooty Hill rather than Kirribilli House and for the trifecta Q3 the visit is a stunt and the carbon tax bad.

    Conroy handling it all with ease.

  23. Want to know what I think will be the negative angle the Libs and their mates in the media will take about the Western Sydney speech by the PM on Sunday?

    ‘Those people in the audience don’t even come from Western Sydney! Julia Gillard couldn’t fill an auditorium with people from Western Sydney who support her…’

  24. About the only thing I can applaud the Queensland LNP on is just how much effort they’ve put into portraying themselves as those one dimensional villains on childrens’ cartoons themed on environmental protection who just want to pollute everything for money.

    It’s truly remarkable.

  25. bushfirebill
    February 28, 2013 at 12:58 pm

    I love the smell of burning Costigans in the morning…

    CAMPBELL Newman’s hand-picked top public servant is part-owner of a Queensland coal-seam gas services business with Sydney-based Australian Water Holdings, the infrastructure company linked to Labor powerbroker Eddie Obeid.

    Sinodinos, O”Farrell and now Jon Grayson.
    Hadn’t been for Grayson, I’d have been in Tennessee…

  26. (Technical question to our brilliant moderators.) When I refresh it takes me back to the start of the page instead of to the last comment I read. Is it my end?

  27. These right-wing govt’s behave with all the symptoms of a large rock dropped into a still pond…: They announce their coming by a narcissic reflection, make a big splash upon arriving..create enormous waves, disturbing the equlibrium, damaging the delicate fabric of life around the pond’s edge and muddying the waters..then after such profound chaos, sink out of sight to join other rocks in the slime and ooze while order and quiet distribution of calm is once again the order of the day!

  28. The debate in the Senate is interesting. Abetz claiming that the plan is about “social cohesion”.

  29. Don’t trust that Abetz character…anyone who goes to so mch trouble to impersonate Pastor Lovejoy from the Simpsons has to be up to no good!

  30. Yeah, I don’t trust Abetz at all. If his excuse that “people who can’t speak english should be put on a police register so their neighbors can understand them”, why not start a government program to teach Asylum Seekers and Immigrants English?

    There’s plenty of room for sinister intentions behind the police register, one of which panders to racist voters that the LNP gives them an element of “protection” from these “evil boat people”.

  31. And now Mitch Fifield claiming that it’s for the “welfare of boat people”.

    Ugh, Michaelia Cash on now. I have to switch the radio off, it takes ages to clean her hateful spit out of the speakers.

  32. jaycee,
    You put it so eloquently about the nature of Coalition governments.

    I would have simply said, that they come at you out of the blue after election day, like a 4×2 between the eyes. After you wake up, it’s too late, they’ve stolen everything of value that wasn’t screwed down, broken the rest, and left the place a mess.

  33. First they came for the Non-English Speaking ‘Boat People’. Then they came for the Unionists.Then they came for the Internet Dissidents….

    Ye godz, if this is what the Coalition are like, unleashed by a slew of good opinion polls and favourable media reporting, in Opposition, then just imagine what they would be like allowed to run rampant by Tony Abbott, in government!

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