ACCC clears Coles of predatory pricing of house brand milk

The competition watchdog says there is no evidence to suggest Coles breached the Competition and Consumer Act by heavily discounting house brand milk.

For the last few months, the Australian Competition and Consumer Commission has conducted industry-wide enquiries to determine whether Coles is or has been in breach of the two predatory pricing provisions of the CCA.

Section 46(1) prohibits businesses that have substantial market power from taking advantage of that power for the purpose of:

• Eliminating or substantially damaging a competitor.
• Preventing the entry of a person into a market.
• Deterring or preventing a person from engaging in competitive conduct in a market.

Section 46(1AA) prohibits businesses with a substantial share of a market from selling goods or services for a sustained period at a price below the relevant cost of supply.

As with Section 46(1), to breach this provision there must be evidence that a business acted with an anti-competitive purpose.

Graeme Samuel, chairman of the Australian Competition and Consumer Commission, said the anti-competitive purpose is the key factor.

“Price cutting, or underselling competitors, does not necessarily constitute predatory pricing. Businesses often legitimately reduce their prices, and this is good for consumers and for competition in markets,” Samuel said in a statement.

The ACCC says the evidence shows that Coles’ purpose in reducing the price of its house brand milk was to increase its market share by taking sales from its supermarket competitors, including Woolworths.

Coles’ price reductions triggered Woolworths and other supermarket retailers to reduce their own prices for house brand milk, culminating in what became known as the “milk wars”.

Samuel said the major impact of discounted milk prices appears to have been a reduction in the supermarkets’ profit margins on house brand milk, rather than a gain.

“As to the relationship between dairy farmers and milk processors, it is the case that some processors pay some farmers a lower farm gate price for milk sold as supermarket house brand milk,” he said.

“However, on the evidence we’ve gathered over the last six months, it seems most milk processors pay the same farm gate price to dairy farmers irrespective of whether it is intended to be sold as branded or house brand milk.”