Milk price facts are not in line with claims of Wesfarmers-owned (ASX: WES) Coles, according to dairy farmers in Australia.

Dairy Farmers Milk Co-operative (DFMC) revealed the realities of the milk market contradict the position of Coles supermarkets and its parent company Wesfarmers that prices for Australian dairy farmers had increased.

DFMC Chairman Ian Zandstra said the claim by Wesfarmers managing director Richard Goyder that milk prices for farmers have increased by 22 per cent over the past year was misleading and prices for farmers who supply the supermarkets where actually in decline.

“Through our supply arrangements with National Foods, DFMC members produce much of the milk sold under the Coles house brand and this season our farm gate prices have dropped by more than 10 per cent in New South Wales and Victoria and 15 per cent in Queensland. Meanwhile, Wesfarmers has posted a half year profit of more than $1.1 billion,” said Mr Zandstra.

“Right now we are in contract negotiations for the 2011/12 season with National Foods who are pushing hard to change the supply terms given the difficult market conditions created by the growth of heavily discounted milk in the supermarkets.”
DFMC represents 1,820 farmer members from 780 dairy farms in Queensland, New South Wales, Victoria and South Australia who produce around one billion litres of milk per annum. Through its relationship with National Foods, DFMC is the largest single supplier to the consumer dairy market in
Australia.

“We have heard Coles and Wesfarmers throw around figures of first a 38 per cent increase and now a 22 per cent increase for farmers but these figures are simply untrue,” said Mr Zandstra.

“Perhaps they are referring to recent modest price improvements for farmers who supply the non-drinking milk commodity market but these have only been around 12 per cent and are off a very low base. Importantly, this part of the industry has little to do with the milk purchased by the supermarkets, so either Coles and Wesfarmers do not understand the industry or they are being willfully duplicitous.

“We believe the position of Coles represents a fundamental threat to the Australian dairy industry.

Everyone will be hurt by the Coles strategy but it is the small businesses – the local milk bars, the milk vendors and truck drivers, and of course the farmers – who will be hurt most.

“We do not expect the British executive team of Coles to necessarily show much sympathy for the plight of Australian dairy farmers, but we certainly expect more from Wesfarmers, with its historical roots in the Australian farming community.

“It is time for Wesfarmers to stop trying to con the Australian public and admit what they are doing with milk prices is threatening the sustainability of the dairy industry. We call on Wesfarmers shareholders to hold the company to account for the damaging and short-sighted behaviour of Coles.

“We recognise in tough economic times Australian consumers are looking for cost savings wherever they can. But we do not believe Australians want cheap milk if it means driving farmers off the land and threatening the viability of an entire industry.”