Scrap over A$1 milk in Australian supermarkets

Three Stuff journalists taste-tested milks to see if they could tell the difference.

Australian supermarket chain Coles has split ways with arch rival Woolworths and will continue to sell A$1-a-litre-milk, prompting an extraordinary call from the federal agriculture minister for shoppers to boycott the supermarket and the discount chain Aldi.

Woolworths on Monday said that after eight years of cut-price milk, it  and would pass the price increase on to Australian farmers in full.

Dairy farmers have blamed A$1 (NZ$1.04) milk for devaluing their produce and driving down farm-gate prices, and immediately called on other retailers to follow Woolworths' lead

But Coles stuck to its guns, and said it was looking for a "long-term solution that does not disadvantage our customers and supports our dairy farmers".

"Coles is committed to finding a better model that can be adopted by the industry to assist Australian farmers, and intends to liaise with relevant parties including government and the ACCC (Australian Competition and Consumer Commission)," the supermarket said in a statement.

"Coles also knows that many customers in Australia face cost of living pressures and doesn't want them to be disadvantaged through price increases."

Coles is running a drought relief fund, which has so far contributed about A$4 million to about 640 dairy farmers.

But federal agriculture minister David Littleproud blasted the measure as a "publicity stunt" that was a "smokescreen to hide the fact they pay bugger all for milk".

Littleproud urged shoppers who wanted a sustainable dairy industry to "switch their business" away from Coles and discount chain Aldi, which has not commented on milk prices this week.

Coles had been saying since August that it wanted to find a new model to support farmers, and it was now time to "put up or shut up" and "act like a decent corporate citizen instead of just pretending to", Littleproud said.

Woolworths said its milk price hike was intended to restore confidence in the dairy industry and improve farmers' viability.

Dairy Australia expects that milk production this year will fall below 9 billion litres for the first time since 1990, while the cost of grain, hay and water are increasing due to drought.

Coles on Tuesday pointed to an ACCC inquiry in 2017 that largely cleared A$1-a-litre milk as the reason for low farm-gate prices.

The ACCC found that farmers are paid the same amount whether their milk is eventually sold as home-brand or more expensive brand label milk, and that increasing retail prices would just lift supermarkets' profits rather than help farmers.

The ACCC inquiry did identify a power imbalance between farmers and the large milk processors that buy their milk and recommended a code of conduct - currently being developed by the federal government - to address this.