Coles locks in milk deal with MG

In a landmark deal, Australia’s largest dairy processor, Murray Goulburn Cooperative, will supply Coles with house-brand milk for 10 years.

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

Murray Goulburn has also hinted it will enlist new suppliers throughout Victoria and into new supply regions to deliver the 200 million litres required per year.

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 venture into fresh milk and comes after the cooperative restructured its flagship Devondale brand last year.

Two new purpose-built processing plants are also in the offing for the company at a cost of $120 million, one in Melbourne and another in Sydney.

The house brand milk will fill the private-label bottles from the middle of next year throughout Victoria, NSW and Southern Queensland.

The deal includes:

  • The national relaunch of Devondale fresh milk
  • Stocking of Devondale cheese at Coles
  • A price premium to suppliers protected by a rise-and-fall contract provisions
  • A five year supply deal for Norco
  • Expansion of processing capacity by Norco

The milk price Coles pays under the agreement locks in a premium that will deliver further profits to Devondale dairy farmers over the life of the contract, an MG statement said.

Price fluctuations in the international dairy markets or movements in the Australian currency will not affect the premiums.

Devondale managing director Gary Helou said the entry of Australia’s farmer owned cooperative into this market eliminates the middle man and hands over profits directly to farmers.

“The daily pasteurised milk segment is currently mainly supplied by foreign owned companies that repatriate their profits to overseas shareholders,” he said in a statement.

“This is a logical growth opportunity that extends Devondale’s domestic presence in consumer markets and is expected to lock in returns that will be paid to farmers through higher farm-gate prices. These higher prices will benefit all dairy farmers.”

Coles merchandise director John Durkan told Weekly Times Now the supermarket had been negotiating with MG and Norco for up to 18 months and the deal offered supply-chain transparency 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.”

Durkan said this deal is in response 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.

“So it allows investment.”

He believes the price paid to dairy farmers would be visible as MG and Norco publish farmgate prices.

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

United Dairy Farmers of Victoria president Kerry Clalow said the deal sets a premium for milk that dairy farmers need.

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

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