Competition for farmgate milk is heating up in Australia as the country’s biggest processor Murray Goulburn this month announced a 10-year direct supply deal with supermarket chain Coles.
Bonlac Supply Company, whose 1200 farmers supply Fonterra factories in Victoria and Tasmania, is confident suppliers would not switch to Murray Goulburn. BSC‘s deal with Fonterra has a clause stipulating the co-op must pay its suppliers “equal to or greater than” the largest Australian dairy company.
BSC chairman Tony Marwood told Dairy News the Coles deal has caused a rebirth of MG. The co-op will aggressively call for new suppliers.
Marwood says it’s widely accepted that MG is the milk price setter in Australia. “So, our agreement with Fonterra is itself protection of the milk supply base. As long as we get equal or greater than Murray Goulburn, the supply base is intact.”
But he admits competition for Australian milk at the farmgate will get tougher. “The milk supply base is not growing. Everybody wants more milk and it will be increasing your supply at the expense of the processors.”
Marwood says every year BCS “lose and gain some suppliers”. But he’s confident there won’t be a drop in milk supply to Fonterra.
Marwood says it’s too early to know if MG’s deal with Coles will translate into a big lift in milk payout.
Australian farmers are enduring a tough season. The average milk price is A$4.90/kgMS. Cost of production ranges from A$5.10 to $5.30/kgMS. Marwood says most farmers are struggling to break even.
Under MG’s 10-year deal with Coles, it will process and supply the retailer’s house-branded milk from July 1, next year. As part of the deal MG will spend A$120 million on two factories in Melbourne and Sydney to supply the supermarket giant’s stores.
MG has already notified its 2480 farmer supplier-shareholders that the Coles contract locks in a premium that will deliver additional profits from July 2014.
United Dairyfarmers of Victoria president Kerry Callow says it’s heartening to see that Coles had listened to the UDV and Australian dairy farmers, who have campaigned for two years to try to 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. Dealing direct means our nation’s largest dairy farmer cooperative finally gets a clear view of what Coles is paying – true transparency.”
Marwood says the deal augurs well for the industry. “It has been very difficult for any commodity to have a good relationship with the supermarkets. The deal develops a relationship between Coles and the dairy industry.”
