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Milk processor records loss: price wars already impacting sector

Australia’s milk wars have claimed their first casualty, with the biggest national milk processor expected to report a loss.

Lion, formerly known as Lion Nathan, is the owner of the two leading Australian milk, Pura and Dairy Farmers, and last night announced its plain milk business will make a loss.

The milk wars started in January, when Coles dropped the price of its home brand milk to $1 per litre, amid rumors the supermarket giant was bullying the dairy industry into selling milk at a reduced rate.

Woolworths quickly followed suit and dropped its price of milk, while dairy farmers voiced their outrage over the changes.

An investigation by the Australian Competition and Consumer Commission (ACCC) cleared Coles of any wrongdoing in the case, and a Senate enquiry last week also found the supermarket was not putting dairy farmers at direct disadvantage with the pricing.

Australian Dairy Farmers Association president Chris Griffin told Food Magazine after the report was released that the Senate failed to address the real issues when it produced its findings.

“It’s certainly have a direct impact on farmers, especially those in northern New South Wales, Queensland and Western Australia, and we have evidence of farmers leaving the industry,” he told Food Magazine.

“If the industry downsized so that only a few can operate in those states, there will be less milk produced and that would have a flow on effect on towns and regional areas.

“Any loss of dairy farmers is not a good thing because there is actually an undersupply of milk, especially in Queensland.

“About a million litres a week is being shipped in to Queensland to cater to the market at the moment.

“Shoppers will pay more in the end, that’s what we’ve been saying since the start.

“Supermarkets were trying to gain total control and they’ve got that.

“This short term gain will lead to long term pain for consumers.”

Lion employs about 4000 people, who could be out of work if the company continues to record profit losses.

The Japanese-owned company told the Tokyo Stock Exchange its dairy and drinks division would be recording a loss, attributed mostly to the heavy discounting by supermarkets and loss of private label products.

Last week, Woolworths announced it would be increasing the number of private label products in stores, amid fears over the supermarket dominance in Australia and subsequent impact on competition.

A report commissioned by the Australian Food and Grocery Council found that if the current supermarket environment continues, 130 000 people could be out of work by 2020.

"As a result of this continued discounting activity Lion has seen a transfer of sales volumes from higher margin branded products into private label and from the non-grocery channel to grocery, and is now projecting a full-year loss in its white milk business,” the company said.

Lion’s business revenue fell almost 9 per cent in the nine months to the end of June.

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