Lion blames supermarket price wars for $1 billion profit loss

The original victim of the price wars between Australia’s major supermarkets, the dairy industry, is still feeling the impacts of Coles’ decision to slash milk prices over a year ago.

Australia’s largest milk processor, Lion, has lowered the value of its dairy and drinks business by $1 billion, which it says is a direct result of predatory pricing by the major supermarkets.

The price wars between Coles and Woolworths has taken centre stage again in recent days, as the former announced plans to slash its produce pricing in half and the latter expected to follow suit.

The reduced retail price of fresh producer has been labelled the ‘next milk wars,’ as experts predict damage to the growers industry will be similar to the dairy industry, which has seen many leaving the now-unprofitable industry.

Australian Dairy Farmers Association President Chris Griffin told Food Magazine the industry will continue to suffer as a result of the milk prices.

“We know there’s been at least 30 leave the industry in Queensland alone, and the majority are sighting the uncertainty of milk prices as the reason.”

Lion predicted it would be reporting a loss in the last quarter of 2011, and the company has now changed its balance sheet to show the tumultuous trade conditions in the financial year.

"Persistent poor global economic conditions have seen a sustained period of low consumer confidence and increased saving activity in Australia," a Lion spokesperson said.

"This challenging environment has been further exacerbated by short-term factors such as poor weather and natural disasters in Lion’s key markets."

Lion’s dairy and drinks business, has suffered continuously increasing input costs and has labelled the fesh milk business "challenging".

"Continued discounting activity has caused a transfer of sales volumes from higher-margin branded products into private label and from the non-grocery channel to grocery," the spokeswoman said.

The produce industry is already predicting long term rises in costs, as growers leave the industry and more imports are brought into Australian supermarkets to keep prices low.

In the end, there will be no Australian produce industry to fall back on, AusVeg spokesperson Simon Coburn told Food Magazine.

As the milk wars began over a year ago, the dairy sector is already feeling a lot of the pain the produce industry is predicting.

Lion’s managing director of dairy and drinks, Peter Kean, said lower margins resulting from the shift to private label means the company may soon be unable to supply fresh milk to parts of Australia.

The company has also reduced its beer, spirits and wine business as a result of changing consumer tastes and a move towards more premium foreign beverages.

Image: The Canberra Times

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