Milk inquiry to probe Coles, Woolworths over massive discounting

Parliament will launch an inquiry into the ongoing milk price war between supermarket giants Woolworths and Coles, with various members of parliament and business groups welcoming the investigation into what some are arguing is anti-competitive behaviour.

Competition lawyer Frank Zumbo says the inquiry is welcomed and that supermarkets should be questioned over whether their behaviour is anticompetitive and will hurt dairy farmers in the long run.

The inquiry has been sparked by both Coles and Woolworths dropping prices of milk to as low as $1 a litre in some instances, sparking fears the dairy farmers could be forced to see the contracts rejigged with lower prices.

“The Senate inquiry is to be welcomed for the purpose of shedding light on this whole issue,” Zumbo says.

“We need there to be transparency and accountability for what is going on. We need to give Coles and Woolworths a chance to explain their behaviour.”

Both Coles and Woolworths were contacted this morning but were unavailable for comment.

The inquiry was confirmed by the Senate yesterday, which passed a motion for the economics committee to investigate how the price war is hurting dairy farmers. Independent senator Nick Xenophon moved the motion, with the Coalition and the Greens supporting the inquiry.

“There is growing evidence that this latest grab for market share by the big two supermarket chains could have a devastating impact,” Xenophon said in a statement. He also wrote a letter to Prime Minister Julia Gillard saying the Government has not done enough to address the situation.

Various other MPs have voiced their support, with Opposition agriculture spokesman John Cobb saying that Coles executives were “quite happy to get their bonuses over the dead bodies of farmers”.

The Australian Dairy Farmers also welcomed the move, after pushing for Wesfarmers shareholders to sign a petition against the cuts. Greens deputy leader Christine Milne also said in a statement that “the time for talk is over”.

“Dairy farmers and many others across the country will lose confidence in the parliament if it keeps talking the talk but failing to walk the walk on critical issues from addressing the failure of national competition policy to closing the loophole in the Competition and Consumer Act that gives the Coles and Woolworths duopoly such power over producers”.

Zumbo says the inquiry needs to look at whether this practice is in contradiction with the Birdsville amendment of the Trade Practices act, passed in 2007.

“There are various issues involved with this inquiry now. The first question we need to ask is whether there is anti-competitive behaviour occurring here. This raises questions about predatory pricing – are Coles and Woolworths selling below cost?”

The amendment mandates that a corporation with a substantial market share must not supply or offer to supply goods that are below cost for the purpose of competition.  Zumbo says both stores need to be questioned about their motivations for selling milk at such low prices, and must determine whether this is below cost.

“This is the question that needs to be decided – are they selling this home brand milk at below cost? And if they are, what are the reasons?”

“If they’re not selling below cost, well, that raises a whole number of issues. You have to look at where they are making up those costs elsewhere, and the impact on the dairy farmers as a result.”