Home >  Blog >  Cost vs Value - again

Cost vs Value - again

Posted by Philip Smith on 5 March 2019

I pity the man who wants a coat so cheap that the man or woman who produces the cloth, will starve in the process. -  Benjamin Harrison

It would be safe to assume that most people perceive their capacity to observe, analyse, reach reasonable conclusions and act accordingly, to be of a high order.

No doubt much of that might be true, but I suspect a bit of caution might be warranted. 

For more years than I wish to recall, I have been beating the drum of Cost vs Value and it is clear that most of us are "Cost" conscious, but how many of us are "Value" conscious?

Being value conscious requires one to be able to articulate a future state, where the benefits of any project are clearly understood and quantified, thus providing a context for Cost.

During the last week I attended a social function where I encountered a great example of this Cost vs Value paradox.

The discussion revolved around the 10c a litre that Woolworths announced they would add to the price of their $ 1 a litre milk ( 30c for 3 litres ).

Much was made, in marketing terms, of what other suppliers such as Coles and Aldi might do next and why.

The conversation moved on but kept turning in my head, as nobody bothered to question what a fair price would be and what the cost of production might be.

We buy Norco milk at $ 4.50 for 3 litres as we consider this at least a better price for the farmers, but have no idea how much of this gets back to the dairy farmer.

Doing a bit of homework on the $ 1 a litre milk revealed that the farmer gets 58c a litre, the processing facility gets 37c and the supermarket gets 5 c per litre. The supermarket is clearly using milk as a loss leader, but what are the consequences, the "future state" I mentioned above?

Already we in Queensland have to import milk from down South as we no longer produce enough milk in this state. The milk price has been frozen at this level since 2011, and as we all know almost everything has gone up in price, just consider electricity as one example.

Somehow we expect the dairy farmer to continue producing, year after year and for him to absorb the additional cost. Have you worked for the past 8 years without an increase in pay?

The predicted "future state" is clear - more dairy farmers will sell off their cows and turn to crops that can sustain the farming enterprise, more or all milk will have to imported, the $ 1 a litre will become completely unsustainable.

Ultimately our ignorance and desire for "cheap" will result in milk at maybe $ 2 a litre and the demise of our dairy farming industry. The loss of jobs and associated knock-on effects will impact entire regions.

Is this the Value that we should strive for just to sustain an unrealistic Cost?

Might I suggest you stop buying "cheap milk" and support the farmers, unless you are happy to have a short-term saving, so that you can afford more bottles of water ( 600ml ) at $ 3  alongside your cheap milk at $ 1 a litre.


Philip SmithAuthor:Philip Smith
About: Philip specialises in getting projects and businesses that are not performing as well as expected, back on track.
Connect via:LinkedIn