MG secures Coles milk deal

Simone Smith
April 10, 2013

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EXCLUSIVE: AUSTRALIA’S largest dairy processor, Murray Goulburn Cooperative, is to supply Coles with house-brand milk for 10 years.

The landmark deal, to be announced today, is believed to be worth $2 billion over the 10 years for the farmer-owned cooperative, which has 2480 suppliers.

MG has also signalled it will recruit new suppliers throughout Victoria and into new supply regions to deliver the 200 million litres required annually.

The milk, which looks set to stay at $1 a litre for the foreseeable future, will fill the private-label bottles from the middle of next year throughout Victoria, NSW and southern Queensland.

The deal includes the NSW-based cooperative Norco.

The two cooperatives will replace house-brand suppliers Parmalat and Lion in these states.

This is MG’s first major move into fresh milk and comes after the cooperative remodelled its flagship Devondale brand last year.

The dairy giant will also build two new purpose-built processing plants at a cost of $120 million, one in Melbourne and another in Sydney.

The deal includes:
THE national relaunch of Devondale-brand fresh milk.
COLES to stock Devondale cheese.
A PRICE premium to suppliers protected by a rise-and-fall contract provisions.
A FIVE-year supply deal for Norco.
NORCO to also expand its processing capacity.

In a statement, MG said the price paid by Coles under the agreement locked in a premium that would deliver additional profits to supplier-shareholders.
It said the premium is not affected by fluctuations in international dairy markets or movements in the Australian currency.

Murray Goulburn managing director Gary Helou said the arrangement was a “logical” growth move to extend Devondale’s domestic presence in consumer markets.
It is expected to lock in returns that will be paid to farmers through higher farmgate prices that will benefit all dairy farmers.

“The daily pasteurised milk segment is currently mainly supplied by foreign owned companies that repatriate their profits to overseas shareholders,” he said.
“The entry of Australia’s farmer owned cooperative into this market segment cuts out the middle man and delivers profits directly to farmers.”

Coles merchandise director John Durkan said the supermarket had been talking with MG and Norco for up to 18 months and the deal offered supply-chain transparency and integrity with sustainability and security for dairy farmers.

“One thing we realised out of our milk contracts (was) we weren’t getting the transparency that we needed and we weren’t close enough to our farmers to be able to do that,” he said.

“This deal clearly allows us, with both of these great co-ops, to get much more transparency, security and sustainability for the farmers.”
The customer benefits included fresher product with days expected to be knocked-out of the supply chain.

“I say that is because our co-ops are going to be closer to demand,” he said.

“Not only are they collectors of milk, they’re going to be processors of milk and we’re going to be able to take lead time out of our supply chain because having a new processing facility in Victoria and a new processing facility in Sydney and an enhanced facility in Labrador with Norco, we’re going to end up with some days out of our supply chain.”

Mr Durkan believes the price paid to dairy farmers would be transparent as both MG and Norco publish farmgate prices

He wouldn’t comment on the recent direct supply deal rival Woolworths had made with seven dairy farmers in NSW, other than to say the Coles deal had been in the pipeline for a long time and was on a “massive scale”.

“This (the Coles deal) is in response to really two things: one, consumers, who say they want to make sure that we are responsible with the dairy farmers in Australia and this is a clear demonstration that we take that very seriously by giving transparent, open, long-term agreements,” he said.

“One of the things that our suppliers say to us all the time, particularly dairy farmers, is we can’t invest in the future if we don’t have long enough contracts. This deals with that completely. You’ve got to remember our milk contracts in the past have been two and three years, these are now five- and 10-year agreements.

“So it allows investment.”

About 15 months ago Coles announced an exclusive deal with western Victorian processor Warrnambool Cheese and Butter to supply Great Ocean Road brand cheese and fresh milk.

Mr Durkan said this new deal would not affect the Great Ocean Road agreement.

In late 2011, Coles partnered with NSW-Victorian based processor Bega Cheese in a deal which saw it supply the supermarkets’ house-brand cheese.
Previously about half of this volume had come from New Zealand.

Coles will continue to source milk from existing eastern state suppliers Lion and Parmalat for its north Queensland, northern Territory, South Australian and Tasmanian supply.

The Weekly Times was unable to seek outside comment due to an embargo.

This morning United Dairyfarmers’ of Victoria president Kerry Clalow said the deal locks in a premium for milk that dairy farmers desperately need.

“It’s also great to hear Coles has agreed to re-stock its shelves with Devondale-branded fresh milk and cheeses,” she said.

Ms Callow said it was heartening to see that Coles had listened to the UDV and Australian Dairy Farmers, who have campaigned for more than two years to try and get farmers a better deal in the fresh milk market.

“We’ve heard lots of arguments from processors and Coles claiming they’re not paying farmers any less,” Ms Callow said.

“Dealing direct means our nation’s largest dairy farmer co-operative finally gets a clear view of what Coles is paying – true transparency.”

Australia’s peak dairy industry lobby group, Australian Dairy Farmers, welcomed the deal and said the most important thing is the reassurance that these contracts will see an increase at the farmgate.

ADF also labelled the creation of the two new milk processing plants as a “positive sign of innovation and long term commitment”.

In a statement ADF said it still encourages Australians to buy branded milk to best support Australian farmers.

NSW dairy lobby group Dairy Connect’s statement stressed that the organisation much ensure the whole NSW is a beneficiary of the deal, while also ensuring branded milk is the “mainstay” of our industry.

Dairy Connect chief executive Mike Logan also said Dairy Connect also had to ensure the route trade (non-supermarket) is still a viable way to sell branded milk.

The statement said the supermarkets have been true to their word and have been looking for new ways to create a sustainable future for the NSW dairy industry. We have to look past the $1/litre milk and build a new future.

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