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Milk Price War Senate Inquiry: ACCC Gives Evidence

Coles denies slashing petrol price to fuel milk price war

By Michelle Hammond
Wednesday, 09 March 2011

Coles has denied that it has increased the prices of petrol to fuel its milk price war, after the supermarket giant was accused of a lack of transparency at a Senate inquiry.


The inquiry, which is looking into milk price discounting in the midst of a fierce battle between Coles and Woolworths, heard from competition and consumer law expert Frank Zumbo yesterday.


Prior to entering the inquiry, Zumbo said: “If you lower the price and cut your profit margins on one of your biggest selling products, you will reduce profit margins across the grocery business.”


Zumbo contends that because there is no pricing transparency system in place across the supermarket sector, it is difficult for consumers to see whether other prices are changing.


According to Zumbo, the inquiry should question whether Coles is potentially breaching competition rules by selling milk at below price.


He also wants to examine whether the price cuts to home brand milk at Coles and Woolworths could lead to anticompetitive price discrimination between branded milk and home brand milk.


Coles, which will appear before the Senate inquiry in two weeks’ times, has denied that it has increased the price of other items, such as petrol, to offset its milk price cuts.


Coles said in a letter to the inquiry: "Coles does not cross subsidise lower grocery prices through higher petrol prices. Pricing of these products is quite separate. Petrol prices have been rising because of higher global oil prices.”


The Australian Competition and Consumer Commission also gave evidence to the inquiry, saying that it had been in contact with Coles over its pricing. ACCC chief executive Brian Cassidy said that the watchdog had been in touch with Coles, but declined to give further details. He did, however, deny that discounting was hurting diary farmers or that milk was being sold below cost.


On Tuesday, dairy farming representatives told the Senate inquiry that government inaction is allowing Coles and Woolworths to abuse their market power.


ACCC chairman Graeme Samuel says all of the focus to date has been on Coles, which initiated the price war when it slashed its milk prices to $1 per litre in January.


“We’ve actually got to start looking at others in the supply chain, and treat with a healthy skepticism some of these protestations about concerns of the farmer,” Samuels said in a statement.


“We want to be sure that the consumer gets the benefits of real aggressive competition, not workable competition.”


John Cobb, shadow minister for agriculture and food security, says comments made by a Coles spokesperson – who reportedly dismissed diary industry concerns as “hysteria” – represent “ringing alarm bells” that supermarkets are thumbing their nose at the industry.


“Dairy farmers will be forced to wear the costs of Coles’ latest marketing gimmick. Reduced milk prices will force dairy farmers who supply fresh milk with higher costs of production onto ruinous prices,” Cobb says.


“I completely understand that families, in this time of the rising costs of living and new taxes… will be forced to buy home brands.”


“Unfortunately consumers will suffer because in the long run, these milk price cuts are not sustainable. If it continues, many historical brands will be forced from the supermarket shelves.”


“We all know how the ‘big corporates’ work. First, you get rid of your rivals by undercutting their prices. Then, once you have put the smaller industries out of business, you put the prices up while continuing to undercut farmers who have no other buyers for their fresh milk.”

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