Australian retail giant changes landscape of dairy sector

Coles has toll processing arrangements in place for Coles brand milk and cheese. The milk for its Coles brand milk is sourced directly from farmers in Victoria, Southern and Central New South Wales, South Australia, and Western Australia. And Coles is in the process of putting a similar structure in place in Tasmania.

For the production of cheese Coles is recruiting dairy farmers from Victoria, the south east corner of South Australia, and the Riverina in New South Wales.

Photo: René Groeneveld

Changing the landscape of dairy farming

Coles Brand Australian cheese is made using Australian milk and is currently sourced from dairy processors. These companies purchase the milk from farmers, under contracts that allow the processor to set the farmgate price.

Under the new sourcing model, Coles will offer a farmgate price directly to farmers. It will pay processor Saputo to make Coles Brand cheese at its 2 Victorian facilities from the milk supplied by Coles under a toll processing agreement.

The direct purchasing of milk from farmers changes the landscape of dairy farming in Australia. Coles can determine the farmgate price it offers to farmers. So far it has been the processors that have set the prices. And in most cases they still do. Coles has now contracted 60 of the 5,700 dairy farms in Australia.

The new structure offers Coles security of supply and a direct relationships with dairy farmers. The grocery giant already has thousands of direct sourcing contracts with Australian farmers across the beef and livestock industry, in eggs and fresh produce, as well as in the packaged food and grocery market.

Coles offers dairy farmers the same prices for each solid regardless of how the milk is used.

400 million litres of milk

The model for dairy was successfully rolled out in South Australia and Western Australia in 2020, with all Coles Brand fresh white milk in both markets now coming from directly contracted farmers within their respective states.

Currently Coles had over 60 Australian dairy farms supplying milk to Coles under direct contracting arrangements. By sourcing directly for Coles Brand Cheese the company expects to lift this number to around 100 Australian farms across the country supplying the supermarket chain with more than 400 million litres of milk every year.

Coles offers dairy farmers the same prices for each solid regardless of how the milk is used. Coles told Dairy News Australia that it has separate prices for protein and butterfat. The amount farmers receive will vary depending on their production. Coles provides farmers with an income estimate if they are interested in supply.

Farmers that supply Coles directly, no longer have a relationship with the processing factory. Their contact is the Milk Department of Coles. Dairy farmers get fixed prices for their milk and agreements do not include rise and fall provisions for prices. According to Coles farmers who have signed contracts with Coles prefer to lock in a long-term minimum price because this gives them the confidence they need to plan for the future.

“Having direct access to the Coles Dairy Team was important to my business. The financial certainty of a three-year price and the day-to-day support of my farm has been the best I have experienced in my 46-year farming career,” says dairy farmer Peter Delahunty. Photo: Coles

Sustainability, game changer for dairy farm

The direct-sourcing model also gives Coles the chance to work on its commitment to invest in a sustainable future for the Australian dairy sector. Dairy farmers that have a direct contract with Coles will automatically join the Coles Sustainable Dairy Development Group. With this group Coles invests directly in farm sustainability projects in consultation with dairy farmers.

The company provides mastatest machines, defibrillators for the farm, market reports and insights such as hay and grain market updates, COVID-safe business plans, masks and sanitiser and is running a number of trials.

We have been waiting for a supply contract like Coles’ for a long time.

Dairy farmers supplying directly to Coles can decide between one, two or three-year contracts, with transparent pricing. Dairy farmer Peter Delahunty from Alvie in Western Victoria says his three-year supply contract with Coles, signed in July 2020, was a game-changer for his dairy farm.

“Having direct access to the Coles Dairy Team was important to my business,” he says. “The financial certainty of a three-year price and the day-to-day support of my farm has been the best I have experienced in my 46-year farming career.”

Positive feedback

South Australian Dairy farmer Glenn Dohnt from Monteith says signing a long-term agreement to supply milk directly to Coles last year provided certainty for his family’s dairy farm at Monteith, where he milks 700 cows. “We have been waiting for a supply contract like Coles’ for a long time”, he explains. “It’s the perfect fit for us.”

According to Charlotte Rhodes, Coles general manager for Dairy, the success of direct sourcing for Coles brand milk and positive feedback from dairy farmers has prompted the expansion of the model to Coles Brand Australian cheese.

“Every time we have been to market looking to buy milk directly from farmers, the response has been very positive,” Rhodes emphasises. “We really value the relationships we have been able to build with our dairy farmer suppliers.”