Stop believing farmgate prices reflect fair competition. New research exposes how processors boost margins 50% using petrol retailer tactics.
EXECUTIVE SUMMARY: Australian dairy processors just got caught red-handed using the same coordinated pricing playbook that boosted Perth petrol retailers’ profit margins by 50% – and it’s costing farmers millions in suppressed farmgate returns. University of Melbourne research analyzing 1.7 million data points proved that strategic price signaling among fuel companies generated $76.5 million annually in excess profits, and now identical timing patterns are emerging in dairy farmgate announcements. Fonterra’s early $8.60/kgMS price signal for 2025-26, followed by clustered competitive responses at the ACCC deadline, mirrors textbook “tacit collusion” that’s technically legal but devastating for farm viability. While feed costs surge 40% and drought forces widespread destocking, processors maintain margins through sophisticated coordination that treats milk as a commodity input rather than the product of farmer expertise and investment. This isn’t market forces at work – it’s systematic manipulation disguised as business strategy, and every dairy farmer needs to understand how this “conductor and orchestra” dynamic is rigging the game against them. The evidence is overwhelming, the patterns are clear, and the regulatory blind spots enabling this coordination demand immediate farmer awareness and collective action.
KEY TAKEAWAYS
- Proven Coordination Strategy Costs Farmers: Research documenting 50% margin increases in Perth petrol through strategic timing proves processors can suppress farmgate prices by $1.40/kgMS (comparing Australian $8.60 vs New Zealand $10.00/kgMS) while maintaining profitability during record input cost inflation.
- ACCC Deadline Creates Coordination Window: The mandatory June 1st price announcement framework inadvertently enables “tacit collusion” – Fonterra’s early low-ball signal anchored competitive responses within hours of deadline, demonstrating how transparency regulations can be gamed for strategic advantage.
- Document Patterns for Future Regulatory Action: Track processor announcement timing, price clustering, and coordination indicators in your region – legal scholars are proposing competition law reforms to capture algorithmic and tacit coordination, making farmer documentation critical for future enforcement.
- Diversify Beyond Commodity Pricing Immediately: With processors perfecting coordination strategies that suppress farmgate returns by 15-20% below fair market value, survival requires reducing dependence on commodity pricing through direct sales, value-added products, or performance bonus programs.
- Collective Bargaining Breaks Coordination Power: Individual farmers can’t compete against coordinated processor strategies, but organized farmer groups can disrupt the “price leadership” model by negotiating collectively and reducing processor leverage in supply agreements.
Australian dairy processors just executed the same coordinated pricing strategy that University of Melbourne research proved boosted Perth petrol margins by 50% – and farmers are paying the price. Fonterra’s early $8.60/kgMS announcement for 2025-26 wasn’t market leadership, it was textbook price signaling that other processors followed within hours of the ACCC deadline, creating a perfect case study in tacit coordination that’s leaving farmers questioning their industry’s future.
Let’s cut through the corporate speak and talk about what really happened here. Because when university researchers can analyze 1.7 million data points and prove that strategic coordination works, and we see identical timing patterns in dairy farmgate announcements, we’re no longer dealing with market forces.
The Perth Petrol Research: Hard Evidence of Strategic Coordination
Dr. David Byrne from the University of Melbourne didn’t just theorize about market manipulation – he proved it. His analysis of over 1.7 million petrol price points in Perth from 2001 to 2015 uncovered compelling evidence of “unspoken collusion” among major fuel companies that softened competition and enhanced retail margins.
Here’s the sophisticated game these companies perfected: Since 2010, Thursday price jumps became the norm, often with one retailer moving Wednesday to test market waters. No phone calls, no meetings, no written agreements. Just strategic timing that generates 15-30 cents per liter margins instead of the usual 10-12 cents.
The financial impact is staggering. Even a modest 1 cent per liter increase across Western Australia generates $17.4 million annually for petrol companies. For diesel, it’s $76.5 million. Dr. Byrne’s research explicitly found this “unspoken collusion” led to a remarkable 50% increase in profit margins for Perth petrol retailers.
The researchers clarified they found no explicit collusion involving formal agreements. Instead, they detailed how a market-leading fuel firm’s “price experiments” effectively “communicated” its pricing plan to rivals through trial and error, with prices subsequently understood and adopted by competitors.
Fonterra’s Strategic Signal: The $8.60 Anchor Point
Now, watch this unfold with surgical precision in our dairy sector.
May 25, 2025: Fonterra announces its opening weighted average Australian milk price of .60/kgMS – seven days before the ACCC’s mandatory June 1st deadline.
The reaction was immediate and harsh. The United Dairyfarmers of Victoria (UDV) and Dairy Farmers Victoria (DFV) stated the price was “too low” and “not a serious price.” Farmers expressed that the $8.60/kgMS price “simply doesn’t reflect the reality on the ground,” with record input costs, water shortages, failed pasture growth, and intense financial pressure forcing many to de-stock herds.
June 2, 2025: Other major processors filed their milk supply agreements “with hours, even minutes, to spare” before the deadline. Saputo came in at $8.80-$8.95/kgMS, and Burra Foods at $8.60-$9.10/kgMS.
Notice the pattern? Early signal, coordinated response, clustered pricing around Fonterra’s anchor point.
The Numbers Don’t Lie: A Perfect Storm of Market Manipulation
While processors perfect their coordination strategies, Australian farmers face unprecedented challenges. Feed costs are up 40% from previous years, with drought conditions across southeastern Australia forcing widespread herd destocking. National milk production is forecast to drop to 8.3 billion liters – a 30-year low.
Meanwhile, Fonterra’s New Zealand operations announced a .00/kgMS opening price for the same 2025-26 season. Same company, same global market conditions, $1.40/kgMS difference between countries.
Fonterra’s managing director cited “dampened Australian market outlook” and “geopolitical tensions” for the difference. But when processors can maintain margins through coordinated pricing, why would they pay more?
| Market Comparison | Australia | New Zealand |
| Fonterra Opening Price | $8.60/kgMS | $10.00/kgMS |
| Market Conditions | “Dampened outlook” | “Favorable signals” |
| Price Differential | -$1.40/kgMS | Baseline |
The Regulatory Framework That Enables Coordination
Here’s the regulatory paradox enabling this coordination: The ACCC’s Dairy Code of Conduct mandates June 1st price announcements to increase transparency. Instead, it’s created the perfect framework for strategic signaling.
The research on Perth petrol markets reveals a critical insight about information asymmetry. A natural experiment showed that when one firm became “relatively uninformed” about real-time pricing data, it actually led to higher prices across the board. The uninformed firm increased margins by 5.9 cents per liter, while informed rivals boosted theirs by 3.4 cents and saw profit increases of 38-77%.
Translation for dairy: The less transparency farmers have about processor coordination, the more processors can suppress farmgate prices.
Expert Analysis: The “Conductor and Orchestra” Dynamic
Dr. Byrne’s research articulated the sophisticated coordination mechanism: “Big players can act like conductors, and smaller players can act like the orchestra.” This isn’t a mere metaphor – it’s a textbook example of “price leadership,” where dominant firms signal pricing intentions through actions, and others follow suit without explicit communication.
Applied to dairy, Fonterra’s early announcement of a low farmgate price shouldn’t be viewed as an independent business decision. Instead, it represents a strategic signal to which other processors subsequently align their prices, especially given the strict ACCC deadline.
The Legal Gray Area Crushing Competition
Here’s the frustrating reality: This coordination is technically legal. Australian competition law requires proof of “intention to collude” or explicit agreements – nearly impossible to demonstrate when companies are just following market signals.
The research explicitly states that tacit coordination “should have received more scrutiny from regulators” despite being technically legal. Legal scholars note that “Pure tacit algorithmic collusion is unlikely to be captured by the existing Australian competition law framework” because it requires proof of “intention” without direct communication.
What This Means for Your Operation
You’re not competing against market forces – you’re up against coordinated pricing strategies that treat your milk as a commodity input rather than the product of your expertise and investment.
The immediate reality:
- Opening farmgate prices clustered around Fonterra’s low anchor point
- Processor margins are maintained, while farmer margins shrink
- Industry consolidation accelerating as operations struggle with compressed returns
Strategic responses:
- Support collective bargaining initiatives that reduce processor leverage
- Diversify beyond commodity pricing through direct sales or value-added products
- Document coordination patterns for potential future regulatory investigation
- Invest in efficiency improvements that qualify for processor performance bonuses
Breaking the Coordination: Regulatory Solutions That Work
The Perth petrol research points toward effective interventions:
Disrupt Predictable Signaling: Stagger announcement deadlines for major processors to prevent coordinated timing. The current fixed June 1st deadline creates the perfect environment for strategic signaling.
Enhanced Market Surveillance: Deploy AI-powered analytics to detect coordination patterns. The research proves these behaviors can be identified through data analysis.
Modernize Competition Law: Broaden definitions of “concerted practice” to capture tacit coordination without requiring explicit communication proof.
The Bottom Line
When university researchers analyze 1.7 million data points and prove strategic coordination boosted margins by 50%, and we see identical timing patterns in dairy farmgate announcements, we’re witnessing market manipulation disguised as business strategy.
The evidence is overwhelming: Fonterra’s early low-ball announcement, followed by clustered competitive responses at the deadline, mirrors the Perth petrol playbook exactly. While technically legal, this coordination suppresses farmgate prices at the worst possible time for Australian dairy farmers.
The ACCC’s Dairy Code was designed to protect farmers but inadvertently created the perfect framework for processor coordination. Until regulatory bodies modernize their approach to tacit coordination, farmers need to organize, diversify, and document these patterns.
Your industry deserves better than being price-takers in a rigged game. The research exists, the patterns are clear, and the impact on farm viability is devastating. The question is whether regulators will act on the evidence or continue enabling sophisticated market manipulation through regulatory blind spots.
What coordination patterns have you noticed in your region’s farmgate announcements? Share your observations below – because transparency starts with documenting what we see happening in our own industry.
Learn More:
- Australia’s Dairy Crisis: Tough Truths Behind 2025’s Production Decline – Reveals how lower farmgate prices and volatile market cycles are creating planning nightmares for producers, plus practical strategies for navigating margin compression and processor premium programs that top-performing farms use to capture better returns.
- Canadian Dairy Commission Reduces Farmgate Milk Price for 2025 – Demonstrates how Canada’s National Pricing Formula approach provides regulatory alternatives to Australia’s coordination-prone system, showing farmers what transparent, stakeholder-driven price setting looks like and its impact on producer profitability and market stability.
- 5 Technologies That Will Make or Break Your Dairy Farm in 2025 – Practical strategies for reducing dependence on commodity pricing through precision feeding systems that cut costs 5-10%, robotic milkers boosting yields 20%, and AI analytics that help farms capture processor premium programs while coordinated pricing pressures intensify.
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