Coles moves to buy milk directly from farmers but dairy producers are sceptical

Daniel Cochrane and Warren Mundine shake hands in Nowra during the federal election campaign. Picture: Rebecca Fist
Daniel Cochrane and Warren Mundine shake hands in Nowra during the federal election campaign. Picture: Rebecca Fist

Wogamia dairy farmer Daniel Cochrane is cautiously optimistic about Coles' decision to buy directly from milk producers rather than through dairy processors.

"It will certainly upset the status quo," he said.

The supermarket giant announced on Wednesday it would next month begin sourcing milk directly from farmers in Victoria and southern and central NSW for its Coles Brand milk.

Under its new sourcing model, Coles will offer dairy farmers one, two or three-year contracts. In its statement, the company said it would also offer contracts with guaranteed prices for two years and a floor price in the third year.

It will then pay processor Saputo to process the milk under a toll processing agreement.

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"It's a good thing for suppliers to have more certainty with the farmgate price," Mr Cochrane said.

However, he was curious about how the Coles decision would play out for farmers whose milk was not destined for the supermarket chain.

"It will be interesting to see what effect this has on branded milk products. The devil is in the detail," he said.

Coles chief operating officer Greg Davis said the new arrangements would offer suppliers a fair and competitive price, flexibility in the length of contracts and greater certainty of income.

Mr Davis said the new sourcing model was a first step to improve returns for dairy farmers while the industry and government worked towards a longer term solution to structural problems.

The supermarket chain would also invest an additional $1.9 million into improving sustainability through its new Coles Sustainable Dairy Development Group.

Ian Zantsra, a Pyree producer who supplies Saputo, which in turn supplies Coles, described the decision as a "milestone moment".

"It's taken the processor out. It's based on the Tesco model in England, where farmers are paid well and there is a sustainability fund," he said.

Like Mr Cochrane, however, he was unsure whether the move would reset the dairy industry.

"I'm not sure if the new Coles practice will lead to a rising tide in farmgate prices."

Jaspers Brush producer Justin Walsh, who supplies Parmalat, which in turn supplies Woolworths, was highly sceptical about the Coles move.

"My initial take is that other industries dealing directly with Coles has been disastrous," he said.

"I suspect it is more about a power play so Coles can exert more control over the dairy industry. They will dictate the market price," he said.

Mr Walsh was also critical of the floor price component in the three-year contract option.

"Floor prices don't work in general," he said.

"If the floor price is set too low, people will go out of business."

He said he suspected the motivation behind the Coles decision was to maintain $1.10 per litre milk.

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This story 'Sounds like a power ploy': farmers wary of Coles milk move first appeared on South Coast Register.