Coles has announced it will bypass processors and contract milk directly from dairy farmers in NSW and Victoria from July 1.
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.
‘Devil will be in the detail’, say farmers
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.
Source: ABC News