In 2011, following the lead of supermarket giant Coles, the major retail chains dropped the price they charged for non-branded fresh milk to a dollar a litre.
At the time, the majority of analysis concluded that the overall retail value of drinking milk sales would decline significantly.
But Dairy Australia’s Situation and Outlook report has found the value of fresh milk sales increased $325 million in the five years since dollar milk came in.
The report finds that while milk became cheaper, the value of overall sales increased.
The analysis found the value of supermarket sales rose $107 million.
Dairy Australia also found that the value of «route and food service sales», which accounts for non-supermarket sales like service stations and milk bars, rose even more, up $218 million.
Estimated retail sales value ($million)
| Year | Total market | Supermarkets | Route and food service* |
|---|---|---|---|
| 2010 | 4,260 | 1,940 | 2,320 |
| 2011 | 4,280 | 1,920 | 2,360 |
| 2012 | 4,434 | 1,996 | 2,437 |
| 2013 | 4,541 | 2,027 | 2,513 |
| 2014 | 4,540 | 2,054 | 2,486 |
| 2015 | 4,584 | 2,046 | 2,538 |
John Droppert, a senior analyst at Dairy Australia, said the findings had defied expectations.
«Liquid milk was traditionally thought of as a very inelastic product: you drank as much as you drank and that was that,» he said.
«We actually saw in the first couple of years of dollar milk that the growth rate of white consumption nearly doubled.»
Just under two thirds of all fresh milk sold in Australia is now sold under a supermarket private label.
In 2011, when dollar milk began, the total value of retail milk sales in Australia was $4.28 billion. It has since grown $4.58 billion in 2015.
The growth in the non-supermarket sector suggests consumers haven’t been lured away from milk bars and service stations, in the numbers that were forecasted when dollar milk came in.
It was assumed at the beginning of the $1 per litre milk that supermarkets would take at least 10 per cent of business from the so-called route trade.
According to Dairy Australia, the route trade has only lost 1.4 per cent of its market to the supermarkets in the last five years.
Actual change in retail sales values ($million)
| Year | Total market | Supermarkets | Route and food service* |
|---|---|---|---|
| 2011 | 21 | -20 | 40 |
| 2012 | 153 | 76 | 77 |
| 2013 | 107 | 31 | 76 |
| 2014 | -1 | 26 | -27 |
| 2015 | 44 | -7 | 52 |
| 5-year impact | +325 | +107 | +218 |
Dairy farmer confidence and milk production rocked by price cuts
The confidence of dairy farmers has fallen with the retrospective milk price cuts from Fonterra, Murray Goulburn.
Preliminary work from Dairy Australia suggests the confidence of dairy producers has fallen 20 per cent across the sector since March.
«Confidence is the first indicator [to drop] and of course milk production will be the next as farmers make decisions and adjust [to milk price cuts],» Mr Droppert said.
A tough season and then a milk price cut means already falling milk production is falling further.
In March, Victoria, which had experienced some of the worst impacts of the El Nino weather system, saw its milk production fall 33 million litres.
Production fell a further 20 million litres in April.
Overall, Dairy Australia expects milk production around the nation to fall by 2 per cent to 9.55 billion litres for the 2015/16 season.
Dairy Australia expects further falls between 2 to 5 per cent to between 9.1 to 9.4 billion litres in 2016/17.
Around Australia, lower milk prices expected
All milk producing regions around Australia are expected to receive lower milk prices next season.
Farmers in the export regions of Australia, traditionally Victoria, Tasmania and South Australia, are bracing themselves for deeper cuts when the new financial year signals the start of a new milk season in July.
But in the fresh milk producing regions of New South Wales, Queensland and Western Australia, milk prices cuts are expected for next season as well.
«You would expect they’re going to start to see some sort of pricing impact,» Mr Droppert said.
«We know from history that there is a linkage in pricing between fresh milk regions and the south east.»
«It just takes time for that to pass through.»
Glut of dairy continues around the world
The bad news for dairy farmers is that the glut of dairy products around the world continues.
A record amount of cheese in storage in the United States, an unknown amount in storage in New Zealand and an increase to the amount of stored milk powder in the European Union to 350,000 tonnes is looming large across world milk markets.
«There is a heck of a lot of surplus product going into storage and that product will overhang the market,» Mr Droppert said.
«When milk production slows down that’s all got to be worked through.»
Source: ABC