The Australian Competition and Consumer Commission has also threatened dairy companies with legal action if they persist in blaming supermarkets for refusing to help farmers cover their skyrocketing milk production costs.
ACCC chairman, Rod Sims, said supermarket contracts with milk processors had “pass through” clauses allowing milk factories to adjust milk payments to their suppliers when farm production costs increased.
“It’s a done fact,” he said.
“If processors decide they should pay suppliers more to secure their milk, the supermarkets will absorb the extra cost as part of their arrangements to sell milk at $1.”
He believed the cost flow-on clauses were common to all the contracts with major retailers which the ACCC examined during last year’s dairy inquiry.
He said a flow-on clause probably contributed to enabling Norco’s promise last week to pay its suppliers a temporary five cents/litre increase in farmgate prices after hay and grain costs doubled during July and August. Norco packs $1/litre house brand milk to Coles supermarkets in NSW and Queensland.
Mr Sims said farmers should be aware supermarkets were not exactly at fault in the current stand-off which has seen producers pleading for retailers to lift milk prices so more money will trickle back to farmgate.
However, he admitted the flow through price clauses only applied to milk which ended up in private label bottles selling for $1/litre.
He also declined to comment in support of Agriculture Minister David Littleproud’s call for a rise in all retail milk prices at the supermarket as a direct means of helping farmers.
“He’s trying to help solve a different issue,” Mr Sims said of Mr Littleproud’s remarks.
“It’s fine to have that discussion as well, but our warning is to dairy processors to be honest with farmers on the $1 milk issue.”
Meanwhile, Mr Sims hoped the dairy industry’s solidified support for a mandatory code of conduct deal between farmers and processors would lead to stronger bargaining power for farmers in their negotiations with processors, and indirectly supermarkets.
He expected the code could result in a flow on impact on supermarket prices if it resulted in farmers bargaining for better price deals with processors, subsequently resulting in more wholesale pressure on retailers to respond to rising production costs.
He also declined to comment in support of Agriculture Minister David Littleproud’s call for a rise in all retail milk prices at the supermarket as a direct means of helping farmers.
“He’s trying to help solve a different issue,” Mr Sims said of Mr Littleproud’s remarks.
“It’s fine to have that discussion as well, but our warning is to dairy processors to be honest with farmers on the $1 milk issue.”
Meanwhile, Mr Sims hoped the dairy industry’s solidified support for a mandatory code of conduct deal between farmers and processors would lead to stronger bargaining power for farmers in their negotiations with processors, and indirectly supermarkets.
He expected the code could result in a flow on impact on supermarket prices if it resulted in farmers bargaining for better price deals with processors, subsequently resulting in more wholesale pressure on retailers to respond to rising production costs.
