With 95% of New Zealand milk processed for exports, a retail milk price war will not greatly affect the farmgate price, says Nosh Food Market owner Clinton Beuvink.
Beuvink last week slashed the milk price at his four stores to $1/L, in effect issuing a challenge to the two major supermarket chains. He says supermarkets are making 30% profit on milk and can bring prices down. Public expectation is on dairy farmers to drop prices but the supermarket chains have to play ball, he says.
"I understand supermarkets make 30% profit on milk – highly unusual for that type of fast moving product line," he told Dairy News.
However, unlike in Queensland, where the Australian milk price war affected farmgate returns, New Zealand farmers have nothing to worry about, he says. "Queensland farmers produce milk for the domestic market."
Queensland Dairy Farmers Organisation president Brian Tessmann agrees. "We've seen in Australia that the impact has been worst in states geared toward drinking milk. States with greater export capacity such as Victoria have not been impacted to the same degree," he told Dairy News.
Federated Farmers has thrown its support behind Nosh saying more focus should be on supermarket margins on milk.
Federated Farmers Dairy chairperson Willy Leferink says Nosh is doing more to open up competition at the retail end than any narrowly focused inquiry can ever achieve.
"Federated Farmers hopes this milk skirmish is the first step in a wider retail milk price war between Foodstuffs and Progressive. It's happened in the UK and Australia so why not here?
"The focus needs to be on the supermarkets because if dairies can sell milk cheaper and a small supermarket like Nosh can sell it as a loss leader, surely Foodstuffs and Progressive can do the same? In two locations at least, Foodstuff franchisees already are."
Tessmann says New Zealand farmers should continue to remind consumers about the real value of milk, a nutritious and important food. Farmers must also keep pressure on governments to ensure competition in the retail sector.
"Farmers must ensure supermarkets do not gain such power that they can place unsustainable pressure on the remainder of the milk value chain.
"The impact of the retail milk war has been felt worst in drinking milk states of Australia, such as Queensland, where production is geared toward fresh milk rather than other products or export. More than 90% of milk in Queensland is fresh milk, so the retail shelf price has a strong correlation to the farm-gate price. We've seen a number of contracts come up for negotiation since the price war began, and there is no disputing the downward pressure on farm margins."
Nosh is running its campaign until the end of this month. The Cow and Gate brand milk is supplied to Nosh by Goodman Fielder, which gets the milk from Fonterra under DIRA.
