Better milk export prices to dry up supermarket giants’ $1.00 private label milk war?

Coles and Woolworths may have gained some dairy industry support for their $1 a litre private label milk, but major dairy processors such as Saputo (which operates Warrnambool Cheese & Butter), Bega, and Brownes are looking to increase dairy exports to Asia and gain higher prices and margins for value-added dairy products such as milk powder, baby formula and long-life UHT milk.

This comes as major losers in the $1.00 milk used to drive customer traffic in the price war between the two supermarket giants are smaller dairy farmers who cannot expand due to lack of bank funding, and independent grocery and convenience stores.

Now private equity-owned West Australian dairy company Brownes Dairy has short listed potential partners to take a stake in a venture to sell milk products in mainland China, frustrated at the pressuring down of domestic prices paid by Coles and Woolworths to local milk suppliers.

And Bega Cheese company announced in September it had signed a $100 million a year deal to supply UHT milk to Chongqing supermarkets in China for $1.00 a litre, while Norco supplies Australian fresh milk to China by air freight for $10.00 a litre.

In August, The Australian newspaper reported that Agriculture Minister Barnaby Joyce slammed retailers continuing to advertise milk at $1 a litre. “They are selling water for a dearer price. This is not sustainable and it sends all the wrong signals back to the farm gate about whether they should be investing,’’ Mr Joyce said.

Surprisingly, Murray Goulburn chief executive Gary Helou responded and backed private label $1 milk and said that house brands dominate the milk category the world over.

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