Coles to cut out milk processors, and deal directly with dairy farmers.

Coles has announced it will bypass processors and contract milk directly from dairy farmers in NSW and Victoria from July 1.

Key points:

  • From July 1, Coles will bypass milk processors and deal directly with farmers in NSW and Victoria

  • Coles has not revealed a price, but says it will be a "competitive farm gate price"

  • The cost of homebrand milk will remain unchanged, despite the deal

In the past, Coles has used processors to source milk for its homebrand products, with Norco contracted in NSW and Queensland and Saputo sourcing milk from Victoria and Southern NSW.

The new model will offer longer term contracts that allow farmers to choose from one, two or three-year contracts.

It marks a shift to a model more in line with competitor Woolworths, where the supermarket will be able to offer a direct price to farmers.

Coles chief operation officer Greg Davis said in a press release it would offer a "competitive farm gate price", but did not specifically reveal a price.

"In addition to offering a fair and competitive price, dairy farmers will have more choice regarding the length of contract and more certainty around income," he said.

"If the model works as we hope it will, we will look for opportunities to expand the footprint to other milk-producing regions and potentially other products in the dairy case."

The ABC understands Coles representatives have met with farmers in Victoria over the past few months.

Coles said it would also contribute an additional $1.9 million for research into the Coles Sustainable Dairy Development Group.

The cost of homebrand milk for two and three-litre milk will remain unchanged at $2.20 and $3.30 respectively.

President of farm group Dairy Connect, Graham Forbes, said Coles appeared to be adopting a model common among UK supermarkets such as Tesco.

It was unclear how Coles contracts and pricing would be structured, however some farmers were hopeful long-term contracts would help give them more security.

Coles said it would offer a guaranteed price for two years and a floor price for the third year.

"It will put a bit more competition out there in the marketplace, and let's hope it lifts the price to farmers and gives them some long-term security," Mr Forbes said.

"It will be very interesting to see how it impacts on Saputo suppliers currently in NSW.

"There is a lot of competition from Parmalat at the moment, Lion has been a bit quiet while it's up for sale, but it will be a very interesting few weeks to see how the processors respond."

David Inall, representing Australian Dairy Farmers, said he was surprised by the announcement.

"It came out of the blue, it's early days, we're not aware that any farmers are contracted to Coles at this stage, but we look forward to more detail around contract and prices," Mr Inall said.

"They have told us that they will offer a price that they believe will be in the top quartile of what is currently on offer, which is certainly an encouraging sign, which will make it very competitive."

Mr Inall expressed concern that this could lead to a return to $1 per litre milk.

"But we'd also expect that this will not see a return to $1 per litre milk, that they have not created this model to slide back to $1 dollar per litre milk — that's a debate we don't want to have again," he said.

Processors face fierce competition for milk

According to food industry analyst and director of Fresh Agenda, Joanne Bills, there were reasons why supermarkets were moving to deal directly with farmers.

"In the UK supermarkets have found that you can add transparency to the supply chain and also implement specific processes, standards, or animal welfare requirements," she said.

"But in Australia it could be looking to avoid some of the fallout from the $1 per litre milk, similar to the way that Woolworths has with its 'Farmer's Own' brand."

Ms Bills believed that, while the fresh milk market represented only a fraction of the Australian dairy industry, the move to deal directly with farmers would add new competition and complexities for processors.

Coles declined an interview with the ABC.

Source: ABC News

World Milk Day to highlight the crisis within the Queensland dairy industry. What you need to know.

Saturday June 1 is World Milk Day. It is meant to be a celebration of the dairy industry and an acknowledgement of the value of dairy in our diet and lifestyle.

This year however, we need the International Milk Day to be used to highlight the desperate state of the dairy industry in Queensland.

The bald fact is that the Queensland dairy industry can no longer meet its domestic market consumption requirements and we are unlikely to recover production volumes to meet domestic demand.

Drought conditions and the poor farmgate price for raw milk have led many farmers to sell up and leave the industry. Not only is this devastating for the farmers, their family and communities involved, but it is sad for all Queenslanders who love their dairy.

On average, Australians consume 102 litres of fresh milk per person, per year.

In years gone by, around 95% of all milk produced in Queensland went into fresh milk product; that is, fresh bottled milk. The 5% remaining was used by small processors manufacturing boutique cheeses, yoghurts and ice-cream. Now, milk needs to come from interstate to meet our state’s consumption.

Consumers and the media are somewhat fickle in their attention to the climate conditions that farmers are still facing. The rain received in the coastal regions over the Easter period led most Queenslanders in major cities to believe that the drought that was so widely covered by the media in 2018, was over.

Only one month ago, the Queensland Government was forced to extend the drought declared mapping area to include all the Scenic Rim and Lockyer Valley, Burnett and Rockhampton regions. Now a staggering 65% of Queensland is drought declared and the Bureau of Meteorology do not have any hopes of unseasonable falls over the coming months.  

Farmers continue to struggle with the price of feed and now water for irrigation is fast becoming a point of major contention across Australia.

The end of $1/L milk was certainly a win for dairy farmers in Queensland. It not only gave farmers a price increase but clearly showed the market that farmers would no longer accept retailers setting a minimum RRP for fresh milk.

One thing however still mars the success of the campaign. It is a widely held misconception that those farmers supplying a processors without a generic contract currently receive no income from the 10-cents a litre.

It is in fact only a portion (around 30%) of most farms’ milk that is allocated to private label (Coles/Woolworths/Aldi and IGA home brands) receives the 10-cent price increase. What this means is that farmers are on average receiving only around 3-cents more per litre across their full volume.

“We didn’t hear a single complaint from shoppers when the price of private label milk increased by 10 cents. As our research showed, shoppers are happy to pay more if it helps the farmers and helps ensure they get fresh milk in future. This doesn’t just apply to cheap milk, but to branded milk too” said QDO Vice President Matthew Trace.

“Unfortunately, help has come too late for many farmers and we’ve lost the ability to supply 100% Queensland made milk unless farmers can make a sustained profit.

While our farmers appreciate the price increase and appreciate the support that consumers have shown, the 10-cents increase needs to be applied to all the milk we produce. All processors need to utilise the opportunity that the end of $1/L milk provides them. They have to have the guts to increase the RRP for branded milk and pass that full increase back to their farmers. That way they will be able to secure their milk supplies by ensuring that dairy in Queensland is profitable” said Mr Trace.

ENDS