Checkout pain: Dairy and grain price rises hit shoppers hardest

Australian shoppers struggling to keep up with surging prices are being hit hardest with spikes in the cost of some of a household’s most basic items.

As inflation has remained high, dairy, bread and cereal prices increased most among food products in the past year – with little price relief in sight.

Dairy and related products (+14 per cent) and bread and cereal products (+11.8 per cent) led food price rises, according to Australian Bureau of Statistics data released this week.

Dairy market analyst Michael Harvey said shoppers’ habits were changing as they endured price hikes, and supermarkets had noticed shoppers looking for a bargain.

“Retailers here in Australia have been talking about consumers looking for bulk buys, or they look for canned products and long-life products, or they move away from fresh produce into frozen products, anywhere where they can, to shop to a budget,” he told the ABC.

But it’s not just consumers. Producers say the double-figure price hikes haven’t kept up with production costs, which have also been hit hard by inflation.

Matthew Trace, eastAUSmilk chief executive and dairy farmer, has about 220 cows across two farms on Queensland’s Sunshine Coast that produce more than 1.5 million litres of milk annually.

Despite high demand for milk and its byproducts, strong beef prices and high land values are encouraging farmers to leave the dairy industry, which has long struggled to get retailers to raise shelf prices enough to cover production costs.

Major retailers Coles and Woolworths hiked home brand milk prices to $1.50-$1.60 a litre last year – but Mr Trace said the industry is still recovering from the supermarkets’ 2011 bid to win customers by reducing prices to $1 per litre.

“That ($1 per litre price point) was artificially deflating the value of dairy. Not all of that ground has been caught up yet,” he said.

“So, I think there’s still some more rises to go through the system to get back to a fair and reasonable price.”

Farmers have not been immune to recent inflation, and have seen cost increases for petrol, fertiliser, and labour.

Mr Trace said shoppers won’t see lower prices on shelves until production costs decrease.

Milk production falls

Terry Toohey, eastAUSmilk district representative and New South Wales dairy farmer, said shoppers will pay more for dairy products with supply tightening as farmers exit the industry.

Australian milk production is expected to fall by 6 per cent to 8 billion litres in 2022-23, after falling more than 7 per cent from July to December 2022 compared to the same time the year before, Australian Bureau of Agricultural and Resource Economics (ABARES) data shows.

This decline in production is largely blamed on wet seasonal conditions and flooding affecting cow feed, their health and the quality and quantity of milk production.

But ABARES noted labour shortages and shrinking cow numbers will continue to keep milk production levels down, with dairy farms also declining.

“The cost factor of setting up the business has always been a lot harder, and … the farmers have not got the returns that they require to enable them to invest into the industry,” Mr Toohey said.

“It all sounds good that we’re getting that increase in cents per litre [that we get paid for our milk]. However, our input costs … have risen the same, if not more, before we’ve actually got the extra return.”

The cost of fertilisers has doubled for his property and tripled for other farms, he said, so the year-on-year dairy product price hike of almost 15 per cent isn’t helping.

“We require those products [like fuel and fertilisers] to help get more of that product out of our doors, however we can’t get the return back from them,” Mr Toohey said.

“So there will be shortages.”

Price rises don’t go to growers

Grain farmers are only seeing a “minuscule” difference with an 11.8 per cent price hike for the results of their hard work, Grain Producers Australia chief executive Colin Bettles told TND.

While giving evidence at a public hearing for the government’s inquiry into food security, Mr Bettles compared Australian growers’ situation to that of Americans’, quoting Washington-based lobby groups analysis which showed a farmer will often receive 20 cents from a loaf of bread that costs $4.20.

A $15 pint of beer in Sydney will likely see the barley grower receive up to 5 cents, he said.

“If you think of a [11.8 per cent] increase, that’s not going back to the grower,” Mr Bettles said.

“So there may be other factors in the supply chain, beyond the grower, which are contributing to that increase.”

Grain farmers aren’t seeing more money flow back through the supply chain when retail price tags rise, yet they’re still battling inflation.

“Last year was a record crop, and that followed on from another record crop the year before … but the price of inputs also were at record highs as well,” Mr Bettles said.

“So fertiliser, fuel and pesticides, they’re essential inputs that farmers use. Shortages of labour mean that farmers are paying more for labour as well.

“We’d like to see more of a correlation between what consumers are paying … to go back to the actual producers and the grain producers that we represent.”

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