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The milk wars enter a whole new phase

4 April 2012

The milk wars enter a whole new phase

Far from being a promotional ‘stunt’ claimed by its rivals, supermarket Nosh has signed a bottling agreement to sell two litres of milk for $2.49. Federated Farmers believes this exposes supermarket ‘home brand’ milk margins of well over 40 percent.

“I know of two Wellington supermarkets selling two-litres of the same ‘home brand’ milk for $2.99 and $3.65 respectively. Using Nosh’s permanent pricing reveals margins of between 20 and 46 percent,” says Willy Leferink, Federated Farmers Dairy chairperson.

“Business people need to make a living and supermarkets are no exception. But it really irks farmers to get the blame for high retail prices, when the supermarket margin on a litre of milk is almost what I get paid for producing it in the first place.

“If people shop around and get two litres of milk for $3 or less, they’re paying more or less the same as Coles’ heavily subsidised pricing in Australia.

“That’s why the focus of the Select Committee investigating milk prices needs to look wider, at why farmers often get the smallest proportion of the final retail price.

“Hand on heart I can tell you New Zealand has some of the lowest farm gate milk prices on earth. That’s why we’re so competitive and why Nosh can do what it’s doing.

“Our farm gate milk pricing is the very reason why Nosh has been able to sign a bottling agreement with Mangatawhiri based independent, Green Valley. It shoots down claims of the big supermarkets and those who talk of ‘barriers to entry’.

“Nosh admits $2.49 for two litres is basically at its breakeven point. At that price though farmers make a living and so does the independent milk processor involved. While Nosh doesn’t turn a profit at $2.49, its pricing provides a yardstick by which to judge what margins other supermarkets run.

“What happens next very much depends on consumers, because at $2.49 for two litres, it’s massively cheaper than Coles’ heavily subsidised milk in Australia.

“It takes Coles’ hundreds of thousands of dollars each week to subsidise milk at the equivalent of an Aussie dollar a litre. If we compare apples with apples and put Nosh’s pricing into Australian dollars, it comes out at A$0.86 a litre. Australian milk being GST free.

“While others have talked, Nosh has again blown this issue wide open and they genuinely deserve to be congratulated. Nosh has focussed attention where it has been lacking; that’s supermarket margins and not the farm gate,” Mr Leferink concluded.

ENDS

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