Coles’ announcement that they intend to bypass processors and start a direct relationship with dairy farmers came as surprise to most within the industry and many are trying to determine what position to take. Given Coles’ previous history with the dairy industry, it is difficult to trust the intentions of the supermarket giant.
While Woolworths has had a direct relationship with farmers through Farmers’ Own, this brand competes with other premium branded white milks at a price point above $3 for 2 litres. Coles, however, intends to sell its farm direct milk as its private label.
Coles has previously committed to ensuring all of the additional 10c/L added to its milk price is passed through to farmers. It would be expected that this latest announcement will see dairy farmers who supply Coles receive 10c/L, or around $1.30/kg of milk solids, above previous prices they received.
In their statement, Coles cites its existing ‘successful’ direct producer relationships to show that this proposed model can work to provide health profit margins for both retailers and the farmers.
The 2018 ACCC report into the dairy industry identified the imbalance of power within the value chain as the key to the failure of the dairy industry. The Mandatory Code of Conduct for the dairy industry, that is currently being drafted as a direct result of this report, seeks to address the imbalance of power between farmers and the processors.
As individual small business owners, farmers have struggled to negotiate with multinational processors for a fair farm gate price. One must question then, what hope an individual farmer will have to negotiate a fair and sustainable farmgate price when they go up against the might of Coles.
The fact is that Coles is capitalising on consumer sympathy for the dairy industry. The massive support that consumers gave dairy farmers during last year’s Drought Relief campaign has prompted Coles to use this to boost sales of its discount product lines over branded milks. Consumers will undoubtedly believe that this new arrangement has been designed to benefit the farmer and therefore support it.
“At this stage, the nuts and bolts of how and what this relationship and process will look like is pure speculation, with only Coles knowing truly what its intentions are” said QDO Executive Officer, Eric Danzi.
“We need to work with the supermarket giant to increase the RRP price of fresh milk to pre-2010 pricing. In today’s market that would equate to around $1.50/L. which would allow farmers to receive a fair farmgate price.
What we need to ensure is that this does not give Coles even more power over dairy farmers and does not allow Coles to revert to $1/L pricing”.
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