CTT1

3 Pages • Essays / Projects • Year Uploaded: 2020

Background Since deregulation of the dairy industry around 2000, milk farmgate prices are determined by market forces. In early 2011, Coles reduced its 2-litre milk price from $2.99 to $2. Woolworths, Aldi and Franklins matched the price discount, which started the milk war. Senator Xenophon (2011) argued Coles and Woolworths were abusing their market power in dealing with suppliers, claiming that “the discounting of generic-brand milk to a level that even Woolworths deems ‘unsustainable for the Australian dairy industry’…”. He quoted a dairy farmer: “These prices … can be expected to flow back to processors and farmers as new supply and pricing agreement are negotiated over the coming months and years”, and concluded: “the benefit of the milk price will inevitably be short lived and could result in higher future prices and ‘irrevocable damage to Australia’s dairy industry’.” In the years to follow saw the closure of many dairy farms across Australia. In February 2019, the major supermarkets raised their milk prices by 10 cents per litre, followed by another 10 cent increase in July the same year. But unlike the earlier increase, the second 10 cents was not passed on to farmers. Task Critically examine the supply chain and evaluate if there is any theoretical or empirical justification for Xenophon’s charge against the major supermarkets.

This document is 20 Exchange Credits