Dairy farmer associations are calling on the Federal government to ban sales of $1/litre milk and, in the meantime, urging consumers to boycott $1/litre milk (sold by Coles and Woolworths under their own brands) and instead buy branded milk (see, for example, “Ban cut-price milk”). However, as I showed in an article over 5 years ago (available here), $1/litre milk doesn’t hurt farmers at all! Indeed, if anything, it helps them. By increasing milk demand at the retail level, it increases demand at the farm gate level; this can only help to raise – not lower – farm gate prices. In any case, farm-gate prices are largely determined by world prices for milk products. The only people who would gain from bans or boycotts are the milk processors who sell their own branded milk at inflated prices. Farmers won’t gain at all and, if anything, will lose. Consumers will be huge losers.
Adelaide Economic Policy Forum