Food manufacturers and farmer slam new Coles prices cuts

Food manufacturers have accused supermarket giant Coles of using its market dominance to destabalise the Australian food sector, after the giant announced another big round of cuts to essential daily items.

After slashing the price of milk by as much as 30% last month, Coles has announced it will cut the price of butter and cream by a similar amount as its battle with Woolworths as the control of the supermarket sector intensifies.

Woolworths has so far matched Coles price cuts by reducing prices of its own private brands.

But despite Coles’ assurances that it will not drop the amount it pays dairy producers and will absorb the cost of the promotions itself, the supermarket chain (owned by West Australian conglomerate Wesfarmers) continues to be attacked.

Yesterday, the Australian Food and Grocery Council, which represents grocery product manufacturers, lashed the company for using the promotions to increase foot traffic in its stores with little thought for the long-term future of the food sector.

“At the end of the day, this price blitz produces a new floor price on staple products – Coles is using its market dominance to destabilise the marketplace, triggering other major retailers to match prices to maintain their market share,” Council chief Kate Carnell says.

“This approach could seriously undermine jobs in Australia.”

The Food and Grocery Council, which says its sector is worth $102 billion a year in revenue and employs almost 290,000 people, argues that Australia’s long-term food security will be threatened if lower food prices force manufacturers out of business.

Carnell says the industry is already battling rising energy and water prices, as well as rising ingredient costs thanks to natural disasters.

While Coles has repeatedly told dairy farmers that it will not be reducing the amount it pays for dairy products, the industry remains sceptical.

Earlier this week, federal independent MP Rob Oakeshott, who has several large dairy producers in his electorate, called on the Government to get involved in the milk wars, arguing they were “arguably an abuse of market power by Coles and Woolworths”.

“This price is not about the consumer. It is about market share and breaking the back of competition in the milk processing market.”

“If anything, this is a price that is anti-competition in the long-term and will see contract prices to farmers seriously threatened and pushed down.”

However, bodies such as the Australian Competition and Consumer Commission have been notoriously wary of becoming involved in promotions that deliver substantially lower prices to consumers, particularly in markets it believes are competitive.