Woolworths opens new battlefront to secure cheaper drinking milk

Posted by AFN Staff Writers on 28th March 2013

Supermarket giant Woolworths this week announced plans to trial buying milk directly from dairy farmers in the Manning Valley in New South Wales.

Woolworths says the trial of a direct relationship between the supermarket and dairy farmers is “seeking to give dairy farmers a better deal for their milk, end-to-end transparency from shed to shelf, the certainty of a longer term contract and a closer relationship to their consumers”.

Woolworths wants to stock milk sourced directly from the Manning Valley farmers in stores in New South Wales by the middle of 2013. The milk will be marketed under a new brand, called ‘Farmers Own’, that the supermarket said will be jointly developed by the farmers and Woolworths.

Woolworths has said that most of its meat and fresh produce is being sourced directly from the producers, but that the trial with the Manning Valley dairy farmers will be the first time an Australian retailer has contracted farmers directly for the supply of drinking milk.

Most dairy farmers sell their milk to milk processors, who then on-sell it to supermarkets and other retailers. But under the trial, milk processors would simply collect a service fee for milk they process, which would mean the supermarket could pay farmers more.

Woolworths General Manager of Fresh Food, Pat McEntee said that the trial of a direct relationship with farmers would benefit both farmers and consumers and could be a model that will enhance the long term sustainability of the dairy sector.

“There is no doubt there are a variety of significant issues affecting different parts of Australia’s dairy industry. No one factor – whether it be the impact of $1 milk, or a tough export market exacerbated by a high Australian dollar – is solely responsible for state of the industry,” said Mr McEntee.

“This trial will not be the silver bullet to fix all the problems but we think it could herald a new way of delivering better returns to farmers and a more efficient supply chain. Over the last couple of years, our customers have expressed their concern about dairy farmers’ long term future in this country,” added Mr McEntee.

In a statement issued by Woolworths, Manning Vale dairy farmer, Tim Bale, was quoted as saying: “We think this trial has the potential to provide a much better deal for farmers in the Manning Valley. Our aim is also to secure longer term contracts, which will give us the confidence to invest in our businesses for a sustainable future,” he said.

Dairy industry players upset by the move

But the news has not been welcomed by everyone.

Food and beverage company Lion (formerly known as National Foods), which processes milk from more than 700 dairy farmers in six States, told the Australian Broadcasting Corporation’s (ABC) ‘The World Today’ program that the supermarket should be focusing on in-store prices that meet the needs of both its consumers and the producers.

National dairy farmers lobby group, Australian Dairy Farmers, also expressed dissatisfaction with the move by Woolworths.

“The direct arrangement between the retailer and the farmer doesn’t address the key issue of selling milk at $1 per litre and it doesn’t address some of the resulting issues within the supply chain and ultimately the returns that farmers receive from their milk,” Nick Green, Australian Dairy Farmers spokesman, told the ABC.

ACCC notified

The farmers lodged a collective bargaining notification with the Australian Competition and Consumer Commission (ACCC) late last week to allow them to collectively bargain with Woolworths. The ACCC is expected to reach a decision within two weeks.

ACCC Chairman Rod Sims told the ABC that the application is likely to be approved.

“If there’s other avenues for dairy farmers to sell their product rather than just the processors, I think that’s fine,” Mr Sims told the ABC. “We’ll look at [the application] seriously and with an open mind, but most collective bargaining applications get through because we think it’s an effective way for people to work,” he said.

Dairy farmers continue national protests

Meanwhile, dairy farmers across the country continue to express their anger at the supermarket giants. Most of South Australia’s 270 dairy farmers met yesterday in Murray Bridge, about an hour south of Adelaide, to protest dairy prices and called for legislators to step in and protect the dairy industry.

Australian Food News reported last week that Coles had met with the leading players in Western Australia’s dairy industry and subsequently agreed to pay higher prices for milk supplied by dairy farmers to its main processor Harvey Fresh.