Woolworths milk deal cuts out supplier

SUE NEALES
APRIL 03, 2014
THE AUSTRALIAN
THE shake-up in Australia’s fresh-milk market looks set to continue, with Woolworths dumping dairy processor Lion in two key states as it shuffles contracts worth $300 million for its $1-a-litre Select home-brand fresh milk.
From July, major dairy company Lion, owned by the Japanese Kirin brewing and food group, will lose the right to supply Woolworths’ supermarkets in Victoria with about 67 million litres annually of fresh Select milk. The $60m Victorian deal instead is understood to have been won by Lion’s biggest international rival, New ­Zealand-based Fonterra.
In Western Australia, Lion has also lost the right to supply Woolies with its local Select milk — which last year achieved local sales of 24 million litres — in favour of West Australian supplier Brownes Dairies.
The Woolworths’ contract losses will deeply hurt Lion, supplier of well-known milk brands such as Pura and Dairy Farmers, after it was similarly beaten last year in the race to continue to supply Coles’ home brand milk sold in its NSW and Victorian supermarkets to Victorian dairy co-operative Murray Goulburn.
Woolworths has also moved to curry favour with local dairy farmers by imposing new restrictions on milk transport and marketing across state borders. All winners of its $300m state-based Select milk supply contracts to be announced today, have had to agree to buy, use and process milk destined for Woolworths supermarkets only from within their own state of origin.
The move is designed to end cheap milk from Victoria being transported for sale in Queensland, where milk costs dairy farmers more to produce, effectively jeopardising their survival.
In the latest round of new Woolworths’ contracts, Italian-owned milk processor Parmalat, which supplies branded Paul’s Milk, has hung on to its Select milk supply deals in its key fresh milk markets of NSW and Queensland.
The changes mean Lion, known better by many dairy farmers as National Foods, has been left from July with only minor Woolworth’s Select supply contracts in the small localised fresh milk markets of Tasmania and South Australia-Northern Territory.
Woolworths sells about 330 million litres of milk a year through its Select home brand range, about one-quarter of all 1294 million litres of milk sold in Australian supermarkets last year, and 13 per cent of the total national fresh milk market.
Woolworths has also decided to match Coles in offering longer contracts to its designated home-brand milk suppliers. move the company says is designed to give both milk processors and farmer-suppliers greater certainty, encouraging investment, modernisation, innovation and expansion.