The Australian Competition and Consumer Commission (ACCC) has revealed that there is no evidence that Coles’ heavy discounting on house brand milk is breaching the Competition and Consumer Act 2010 (CCA).

“The major impact of the reduction in milk prices since January seems to have been a reduction in the supermarkets’ profit margins on house brand milk.  These price reductions have benefited consumers who purchase house brand milk," ACCC Chairman Graeme Samuel said.

The ACCC has been conducting industry wide enquiries with dairy market participants including industry associations, milk processors, supermarkets and independent retailers to assess whether Coles’s price reduction on milk down to $1 per litre is or has been in breach of the two predatory pricing provisions of the CCA.

But the enquiries have revealed evidence 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.  This is consistent with what the ACCC would expect to find in a competitive market.

“It is important to note that anti-competitive purpose is the key factor here. 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.
After Coles price reductions, Woolworths and other supermarket retailers have also reduced prices for house brand milk. 

The ACCC’s enquiries show that there is a significant variation between respective costs of supply and operating margins among supermarket operators.  

“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,” Samuel 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.” 

The ACCC will continue to monitor conduct within the dairy industry and grocery sector for signs of anti-competitive behaviour.