A decision by supermarket giant Coles to cut the price of milk to $1 a litre has been a win for consumers that had not badly affected Australia's dairy industry, a Senate inquiry has concluded.
The Senate committee tasked with investigating a subsequent price war tabled its final report in parliament on Thursday.
It sided with Coles, which was the first to slash the cost of its homebrand milk and denied claims by dairy farmers that it would send them broke.
"The January 2011 price cuts in a staple product is undoubtedly good news for consumers in the short term," the report stated.
"Provided it does not constitute predatory pricing, a retail price cut should not be discouraged."
Dairy farmers complained that cut-price milk eventually would cost them profits, although Coles insisted it was absorbing the difference.
The Senate report said most of the evidence suggested farmers weren't too badly hurt because most drinking milk is produced in states that have other dairy industries to feed off.
"Most dairy famers will not be significantly worse off," it said.
"The emphasis on drinking milk means any pressure on retail prices could potentially be pushed back down the chain, although at this stage there is not evidence the major supermarkets have done this."
But the committee said it might not be the same for states such as Queensland and Western Australia, where production is almost exclusively for drinking milk.
It was concerned that one group of farmers in Queensland had suffered an immediate cut to their prices, but couldn't understand exactly why.
"Whether a consumer chooses to buy a bottle of processor-brand (branded) milk or the supermarkets' private label should not (as a matter of principle) be a concern for farmers."
The Senate committee received 160 submissions and delayed its final report twice to consider the evidence.
It noted much of the concerns with the cut-price centred around an argument that it would shift sales away from branded milk to homebrand milk.
But the committee said that was not an issue that needed to be addressed by government.
Its seven recommendations included a call for a review into the sustainability of Australia's dairy industry, another into competition law and various urgings for more transparent negotiations in milk contracts.
Dissenting senators went further, arguing competition law needs to be changed.
"If what Coles and Woolies have done to the dairy industry isn't illegal, it should be," independent senator Nick Xenophon said in a statement.
"Their unsustainable price war has already driven some farmers out of the industry."
