Coles discounting of house brand milk is not predatory pricing

The Australian Competition and Consumer Commission (ACCC) announced it considers there is no evidence that Coles has acted in breach of 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 is or has been in breach of the two predatory pricing provisions of the CCA.

ACCC 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.

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. However on the evidence we've gathered over the last 6 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," Mr Samuel said.

"On that front, the ACCC has recently issued a draft decision proposing to allow dairy farmers associated with Australian Dairy Farmers Ltd to continue to collectively bargain with milk processors for a further 10 years. This strengthens the position for farmers when negotiating with processors over milk prices", Mr Samuel said.

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