Coles has broken ranks with arch rival Woolworths and will continue to sell $1-a-litre-milk, prompting an extraordinary call from the federal agriculture minister for shoppers to boycott the supermarket and the discount chain Aldi.
Woolworths on Monday said that after eight years of cut-price milk, it was increasing the price of its home-brand two- and three-litre cartons by 10¢ a litre and would pass the price increase on to farmers in full.
Dairy farmers have blamed $1 milk for devaluing their produce and driving down farm-gate prices, and immediately called on other retailers to follow Woolworths' lead as the east-coast drought drives many farmers out of business.
But Coles has stuck to its guns, leading federal agriculture minister David Littleproud to issue a statement, urging shoppers who wanted a sustainable dairy industry to "switch their business" away from the supermarket and discount chain Aldi.
Coles chief executive Steven Cain said the supermarket was holding out for an “industry-wide solution”, that would, in effect, place a levy on all milk brands that would go to farmers.
“One thing I can’t do as CEO of Coles is disadvantage our customers at a time when clearly they’re under household budget strain,” he told reporters after handing down Coles’ half-year results on Tuesday.
“The $1 litre has been an important product for Coles in re-establishing itself as the best value supermarket in Australia and we’re very proud of the fact that we’ve managed to reduce the cost of living for Australians for around about 10 years.
“I don’t want to join the Woolworths club, so to speak, and leave our customers paying more for milk than some of our competitors’ customers might.”
Aldi has also refused to budge on its $1 milk price, saying in a statement that the "most meaningful and effective action" it could take was to work with its suppliers, the major milk processors.
"Aldi is not supportive of retailer-led initiatives that seek to bypass the normal supply chain and channel money directly from retailers to primary producers," Oliver Bongardt, Aldi's managing director of buying, said in a statement.
The future for Queensland dairy farmer Brad Teese, who supplies milk to Woolworths through a major processer, is looking a little brighter.
The fourth-generation farmer said the industry was showing the first signs of improvement since deregulation 18 years ago, and called on other retailers to follow Woolworths' lead.
“It’s not the saviour for the industry, but it’s the first step,” Mr Teese said. “And every journey starts with the first step.”
Mr Teese was paid 3.82 cents a litre last month, propped up by money finally flowing from the drought relief fund. It was the first time the farm had made a profit in the past 12 months.
He now expects to get paid at least 8 cents a litre following Woolworths' announcement.
“Year-to-date, we’re $38,000 in the red,” Mr Teese said. “This [10 cents hike] will give us a bit of a brighter future. It won’t fix everything, but Woolworths need to be supported over this decision.”
'Pay bugger all'
Coles is running a drought relief fund, and matching customer donations dollar-for-dollar, and has so far raised about $4 million to about 640 diary farmers.
In a subtle dig at Aldi, Mr Cain said some retailers had done "very little" to support drought affected farmers.
But Mr Littleproud blasted Coles' fundraising measure as a "publicity stunt" that was a "smokescreen to hide the fact they pay bugger all for milk".
“The farmers wouldn’t need donations from the public if Coles and Aldi paid fair prices," he said.
Coles had been saying since August that it wanted to find a new model to support farmers, and it was now time to "put up or shut up" and "act like a decent corporate citizen instead of just pretending to", Mr Littleproud said.
Australian Dairy Farmers president David Inall said farmers were not after the "tokenistic" gestures of the drought relief fund.
"Farmers aren't after coins collected at cash registers," Mr Inall said. "They're after fair prices for their product. Milk cannot stay $1 a litre forever."
NSW agriculture minister Niall Blair blasted Coles for being "weak" and urged the supermarket giant to rethink its decision.
The "psychological" barrier of $1-a-litre milk needs to be broken, Mr Blair said.
"What Woolworths decision does is it starts to, hopefully, change the way milk is viewed as a premium product in this country," he said.
"A dollar a litre milk undervalues the milk and it leads to a perception that it wasn't worth something to back and accelerate in this country."
Mr Niall is calling on shoppers to heap pressure on Coles, that he says has been profiteering on the back of farmers through its marketing campaigns.
Dairy Australia expects that milk production this year will to fall below 9 billion litres for the first time since 1990, while the cost of grain, hay and water are increasing due to drought.
Coles on Tuesday pointed to an Australian Competition and Consumer Commission inquiry in 2017 that largely cleared $1-a-litre milk as the reason for low farm-gate prices.
The ACCC found that farmers are paid the same amount whether their milk is eventually sold as home-brand or more expensive brand label milk, and that increasing retail prices would just lift supermarkets' profits rather than help farmers.
Woolworths aims to get around that by handing the price increases directly on to farmers.
The ACCC inquiry did identify a power imbalance between farmers and the large milk processors that buy their milk and recommended a code of conduct - currently being developed by the federal government - to address this.
Federal Labor is mounting pressure on the Morrison government to act swiftly and implement the code of conduct.
The agriculture spokesman Joel Fitzgibbon said while he acknowledged the code won't fix all the problems, it could address the bargaining power imbalance between the farmers and processors.
"A delusional agriculture minister David Littleproud yesterday claimed credit for Woolworths' levy on its private label milk believing he's doing great things for the dairy industry," Mr Fitzgibbon said.
"A modest levy will not fix widespread structural issues in the industry. The reality is dairy farmers are hurting now."
Dairy Connect Farmers Group president Graham Forbes said all other brands should take heed of Woolworths' decision and increase the price of its milk.
"It should be a real disappointment for Coles' shareholders that they're not being good corporate citizens," Mr Forbes said.
"The farmers that directly supply to Woolworths are quite elated with what Woolworths has done - it's going to be a very substantial amount of money."