In an innovative move, Coles will source milk directly from dairy farmers for particular milk products.
Until now Coles has relied entirely on dairy processors to purchase milk from farmers to supply for Coles Brand milk, under contracts that allow the processor rather than the supermarket to set the farm gate price.
Next month Coles will cut out the milk processors and buy milk for its Coles brand two and three litre products directly from a limited number of farmers in Victoria and southern and central New South Wales.
The supermarket will now pay dairy processor Saputo to process and bottle under a toll processing agreement.
Australian Dairy Farmers (ADF) Chief Executive Officer David Inall believes that more competition for milk is healthy and the Coles initiative had potential for greater transparency within the dairy supply chain between farmers and retailers.
“We are hopeful that Coles will use this measure to build closer relationships with farmers, but we are seeking further engagement on how the initiative will work,” he said.
“Coles must also commit to ensuring that $1-a-litre milk never returns to their shelves after the price was raised to $1.10 per litre in March.”
National Farmers’ Federation CEO Tony Mahar said dairy farmers were at the mercy of farm gate prices set by processors and in recent years profit margins have been narrowed to the point where it was unsustainable for some farmers to continue to operate.
“A strong, viable dairy industry was vital to ensure all Australians could continue to enjoy fresh, Australian dairy products.
“Coles announcement this week is certainly no silver bullet to the challenges confronting our dairy sector.
“The NFF and ADF, look forward to learning the finer details of how the new sourcing arrangements will work and how they will serve to advance the interests of our dairy sector,” Mr Mahar said.
Coles also announced it would invest $1.9 million through a new Coles Sustainable Dairy Development Group to fund research to improving the sustainability of Australia’s dairy industry.