A Few Kernels Short of A Cobb

Tim Andrews cries over unspilled milk:  

It is clear that sharp increases recently in the cost of household staples is hurting Australian families. Even before the QLD flood, food prices were going up vegetable prices rose 11 per cent  and fruit prices jumped an extraordinary 15 per cent between the September and December 2010. The effects of the floods have many predicting food prices to increase even further - by a staggering 50 per cent. And this was even before Yasi hit, which will cause some basic food goods to skyrocket -  Bananas, for instance,  are set to triple in price up to $15 a kilo. As a result, inflation is predicted to increase to 3%, which, to make matters even worse, will significant pressure on interest rates. 

So I was quite happy to read see in my RSS feed a headline today that the Australian Senate was set to look into food prices. Excellent! I thought to myself. This is a great opportunity to re-examine some of our protectionist policies and over-regulation that keep the cost of many goods Australian purchase artificially high.

So I clicked on the link, and read this:

PARLIAMENT will investigate a milk price war after concerns the major supermarkets are attempting to drive out competition.

 Coles and Woolworths are engaged in a milk price war that has driven down the price of some milk to $1 a litre.

At which point I rubbed my eyes, and thought I was seeing things. And re-read the piece. And yet the words did not change. Apparently our politicians have decided that cheap milk is something so alarming, that Senator Xenofon has established a full Senate Enquiry into them. 

I do not even know where to begin with this. The mind just boggles. What is even more galling is the fact that the charge seems to be led by the Coalition, in particular, John Cobb, the Shadow Minister for Agriculture and Food Security. 

Now, I recognise the fact that Mr. Cobb, as a National, has to pander to his constituants. But to lead the charge against cheap milk - something that will save the average Australian family hundreds of dollars a year - is just beyond the pale. 

Indeed, argument that this 'hurts farmers' is, to be frank, abject nonsense. Nor is their claim it will hurt small business. Why? Because it is clear that Coles is absorbing the price cut. As economist Dr. Joe Clark points out:

Possibly their reasoning is that if Coles cuts its retail price it will need to extract a better price when they negotiate with farmers. But that doesn’t make sense either. Price is determined by prevailing market conditions: demand and supply. Coles doesn’t improve its bargaining position by dropping its retail price.

Maybe they’re confused and they actually want to protect small retailers from the competition. But that doesn’t make much sense either. Small retailers don’t make that much money on milk. They provide it as service to customers who they hope will fill up their trolley with more expensive items. I doubt 7/11 owners will mind too much if Coles sells cheap milk because they’re not really competing in that market. They provide convenience and long trading hours and nobody’s going to stop going to the 7/ll because their milk is a few cents dearer than Coles.

To repeat: the losses are being absorbed by Coles. They are not being passed on through lower prices to farmers.  In fact, not only is Coles absorbing the losses, it  recently negotiated price contracts with milk processors had awarded them higher prices. And the small business argument is bunk too - people who choose higher prices for the convenience of a 7/11, or the atmosphere of a corner store, will still be able to do so. This is scaremongering pure and simple. With no basis in reality. 

John Cobb stated that Coles executies are "quite happy to get their bonuses over the dead bodies of farmers." In doing so, he is either lying, or stupid, or both. Perhaps he thinks there is political traction to be had by bashing business. But this slander against a business that provides jobs to 100,000 Australians, and has contributed to significantly reducing household grocery budgets is an utter disgrace. Coles is providing hundreds of thousands of Australian families with much-needed savings. All Australian households will be better off as a result. Of that, there is no question - it is simply fact. 

Or you know what, maybe I'm wrong. Maybe supermarkets shouldn't be free to sell cheap things. Why don't we extend this inquiry into all goods sold in Australia. Maybe we can then have the government setting the price for everything. Bureucrats dictating just how much everything should cost. That would work, wouldn't it? Yeah, can't really see any problems with using that as an economic policy. Let's nationalise the banks while we're at it.

John Cobb - and those in the Coalition who supported him - should hang their heads in shame. This is gutter politics at its worst.  And something which has the potential to serious hurt all Australian families.

Tim Andrews is the acting Editor-in-Chief of Menzies House. Tim Andrews graduated from the University of Sydney with undergraduate degrees in Economics and Law (Hons), followed by a Master of Public Policy. From 2006-2008 he served as Federal President of the Australian Liberal Students' Federation, and since then, has worked in Washington DC analysing the effects of fiscal policy. 

Comments

[Dan Nolan]

1.

It's obvious that the solution to big supermarkets competing is to do away with property rights altogether.

[Vikas Nayak]

2.

Is it just me, or do i fail to see a problem. Cheap milk is an issue for parliament to discuss?

[.]

3.

There is an argument that supermarkets have market power due to planning regulations.

Woolworths has a lot market power in liquor distribution for example.

For the most part, I have no problem with this. I've lived near a corner store in the country and paid absurd prices for coffee and flour etc.

It's a silly argument. To price stuff that low requires masses of capital outlay and inventory management systems.

Hardly the ruin of an industry.

Cobb is not the same without the 'mo.