Major retailers Coles and Woolworths are raising the price of own label fresh and UHT milk products, due to rising costs and an increase in farmgate prices, as Rabobank says the global dairy industry is entering “unchartered territory”.
Coles price increases have its own branded fresh white milk rising from $1.35 to $1.60 for 1 litre, $2.60 to $3.10 for 2 litres, and $3.90 to $4.50 for 3 litres. Coles Brand UHT 1 litre will increase from $1.35 to $1.60.
A Woolworths spokesperson told Food & Drink Business that it too would be raising prices from 15 July to $1.60 for 1 litre, $3.10 for 2 litres, and $4.50 for 3 litres.
“The farmgate prices paid to dairy farmers have risen significantly this season, and as a result we’re paying our own brand suppliers more for milk.
“Across the dairy cabinet, brands have already increased their retail prices to reflect higher wholesale costs across the entire industry.
“We’ll be adjusting the price of our own Woolworths brand milk in the coming days to reflect these higher costs as well,” they said.
Both retailers have announced price drops of home brand items to counter cost of living pressures. Last month Woolworths told members of its Everyday Rewards program it was putting a price freeze on household home brand staples including pasta, sugar, flour, cheese, and frozen vegetables.
Coles chief commercial officer Leah Weckert said the company knows customers are dealing with increased cost of living pressures and that raising prices was not something it was doing lightly.
“The increased supply chain costs we are seeing, including higher payments to dairy farmers and processors, have necessitated these increases on Coles Brand milk products.
“The feedback we’ve received from farmers and processors following the recent increases in farmgate and wholesale prices has been very positive, and we hope customers will help us continue to support them by purchasing their great quality Australian milk.”
In June, Coles signed updated contracts with 100 Australian dairy farms to supply milk directly for Coles Brand. The agreement included an increase to the farmgate price paid by Coles this financial year, which also applied to farmers with multi-year contracts already in place. Coles has been paying these higher prices since July 1.
The company that in recent months it had also agreed to “significant increases to wholesale prices in markets where Coles Brand milk is sourced from processors, as the farmgate price they pay to dairy farmers has also risen substantially”.
Dairy co-operative Norco CEO Michael Hampson, which supplies Coles Brand milk in Northern New South Wales and Southern Queensland, said the increased farmgate price was making a huge difference to dairy farmers.
“Through our long-term partnership with Coles, we have been able to support our 300 farmer members with a record farm gate milk price increase across the total 200 million litres that our members supply to our 100 per cent farmer owned co-operative.
“This is especially important as farmers face pressures from rising costs of production, with many still recovering from the devastating impacts of recent unprecedented weather events,” Hampson said.
Woolworths said its branded milk is supplied by dairy processors, with processors setting the farmgate price paid to dairy farmers for their milk, with increases in the farmgate price being passed by processors through to Woolworths.
Non-Woolworths milk brands or “vendor-branded” milk is supplied to Woolworths as a finished product. “Woolworths only engages with milk processors for its Woolworths own brand milk. For non-Woolworths brands, retail prices have increased across the market as a result of those suppliers requesting cost increases due to their own higher wholesale costs,” the company explained.
Rabobank: “Be confident, but aware”
In its Australian Dairy Seasonal Outlook for 2022/23, Rabobank said dairy producers were set for a profitable season, but risks were building.
Record high milk pricing and favourable seasonal conditions along with the ‘fundamentals’ of the global dairy market meant profitability was being supported, but increasing costs were putting farmer margins under pressure, the food and agribusiness banking specialist said.
Rabobank senior dairy analyst Michael Harvey said global dairy markets were in “unchartered territory”, with global market tightness driven by a “complete shutdown in milk supply growth across the ‘export engine’”.
“Global dairy markets are witnessing a rare event, with the ‘Big 7’ dairy exporters (the EU, US, New Zealand, Australia, Brazil, Argentina, and Uruguay) all recording lower milk production this year than last,” Harvey said.
“This supply crunch has primarily been driven by a combination of rising costs, supply chain disruptions and weather-related impacts.
“Looking back, it is hard to recall a time when so many major global and geopolitical events clouded the outlook for markets at once,” Harvey said.
Commodity prices for Oceania-origin butter and cheese were trading at record levels and the milk powder complex was nearing record highs, he said in April.
He added that considerable cost inflation was already being felt on farm so despite a lift in milk prices in the 2022/23 season, rising input costs meant there was potential for squeezed farm margins.
Harvey said, given the complicated operating environment, dairy farm businesses should warmly welcome the strong local guaranteed milk pricing, the report says, as processors compete for dwindling Australian supply.
“Few dairy farm businesses operating in trade-exposed dairy sectors in other markets have this security and longevity in guaranteed milk prices.
“There are record minimum milk price offers already in the market across southern Australia. This will provide a strong cash flow position for farm businesses and, given the level of price security, could provide a good risk management platform for inputs to ensure an adequate locked-in margin,” Harvey said.
Rabobank forecasts a 0.9 per cent increase in milk production in 2022/23, returning production to 8.64 billion litres, and representing “the first small steps towards stabilisation”
