One morning last week, ABC Sydney presenter Deborah Cameron was encouraging listeners to support dairy farmers by forgoing large savings offered by $1 per litre home brand milk at the major supermarkets. Opinion leaders across the country shared the sentiment and did likewise.
Independent Senator Nick Xenophon told the Senate inquiry into milk prices that the 'unsustainable' $1 per litre price will force farmers off the land and ruin Australia's dairy industry.
It's true that farmers suffer inordinately from droughts and floods. It's tempting to think we're doing them a favour if we forgo discounts and pay higher prices for branded milk. But a better way to help struggling farmers is to give to the relief appeals organised by Vinnies and other charities, enjoy cheap milk, and drink more of it, guilt free.
Low milk prices are the market god's gift to consumers. Like milk itself, market mechanisms that reward viable, well-planned businesses are healthy.
Economists argue that consumers and dairy farmers alike stand to benefit from $1 per litre milk prices. Price reductions create new markets, which is what happened with discount air fares. If milk is cheaper than Coke, people will drink more milk and less Coke. In this instance, it's not the farmers who lose, it's the Coca Cola Company.
In his economics.com.au blog last week, Dean of Business and Economics at Monash University Stephen King ridiculed the opinion leaders who predict ruin for dairy farmers. He suggests the following mock headlines:
Coles threatens farmers. 'We'll sell more milk'
Farmers plead: 'Don't sell more of our product'
Increasing milk sales to hurt dairy farmers
King's logic is that low prices and increased retail sales help producers who supply what economists call the 'inputs'. For milk, the main producers are the dairy farmers. More milk will be sold and retailers will need to persuade farmers to supply more milk. You cannot do that by harming the farmers.
To drive home the message, he uses the analogy of China. Australia provides inputs such as iron ore that enable China to sell low priced manufactured goods. Australia is the beneficiary of China's low prices in the way that the dairy farmers gain from supermarket milk discounts.
The broader message is that replacing fear with informed thinking can produce an outcome that is more pleasing than that dictated by popular sentiment. This applies not only to milk prices, but also to much larger issues such as carbon reduction.
Michael Mullins is editor of