Murray Goulburn, the co-op that processes our milk, sent out an email this morning that will have a huge impact on dairy farming: it will supply Coles fresh milk for the homebrand and our own Devondale milk. Here’s an excerpt from MG’s press release:
“• Devondale announces 10-year private label daily milk partnership with Coles
• The Co-operative will also relaunch Devondale branded daily pasteurised milk
• Devondale cheese will return to Coles’ shelves
• Deal will deliver additional profits to Devondale dairy farmers
Devondale (Murray Goulburn Co-operative Co. Limited), the Australian farmer Co-operative, today announced a landmark, ten-year partnership to supply Coles with daily pasteurised milk for its private label brands in Victoria and NSW from July 2014.
Separately, the Co-operative will also relaunch Devondale-branded daily pasteurised milk, through an initially exclusive agreement with Coles, and Devondale cheese will return to Coles’ shelves.
The milk price paid by Coles under this unique agreement locks in a premium that will deliver additional profits to Devondale dairy farmers over the life of the contract. The premium is not affected by price fluctuations in international dairy markets or movements in the Australian currency and the contract
contains rise and fall provisions to protect the premium farmers receive.
As a Co-operative, Devondale will return 100% of the profits from this agreement to its farmer-shareholders through higher farm-gate returns.
Devondale Managing Director, Gary Helou, commented, “The daily pasteurised milk segment is currently mainly supplied by foreign owned companies that repatriate their profits to overseas shareholders. The entry of Australia’s farmer owned Co-operative into this market segment cuts out the middle man and delivers profits directly to farmers.
“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.”
It goes on to say that:
“We appreciate that there has been considerable public concern about the pricing policy for private label milk. Under the contract agreed with Coles the retail shelf price for milk does not determine the profits that will be received by MG supplier-shareholders.”
“MG expects to receive returns that represent a premium over and above the price available in other markets such as commodity dairy ingredients. The contract is expected to lock in this premium for ten years, regardless of what is happening in international dairy markets or movements in the Australian currency. All profits on this contract will be returned to all supplier-shareholders through improved farmgate returns. This new revenue stream will also reduce volatility by providing an additional domestic earnings stream as a balance to fluctuating export earnings.
“As part of this expansion MG will be taking on new supplier-shareholders across existing and new supply zones to meet the growing demand on our milk supply. This includes growing a local milk supply in the Sydney region. The Sydney milk pricing arrangements are yet to be finalised but importantly, the arrangement provides sufficient flexibility for MG to offer a fair farm-gate price which will be supported by Coles. In other words it is expected that all profits from this project will be returned to our total supplier-shareholder base.”
Will have more on this for you later today.
The Milk Maid Marian 
Its hard to know whether or not this deal is a good thing. I’m crossing my fingers that you are not getting locked into a long term deal that just gets harder with time. It better not be just another “supply” agreement where the price premium is wiped after the first year, either by direct price reduction or spiralling input costs.
I wonder who in NSW will jump ship- the price will need to be at least 50c a litre.
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Devil will be in the detail Marian.
All the stuff listed by MG as positives really are just side issues for Coles. Providing a bit of shelf space for these Devondale items doesnt affect Coles much and the fresh milk supply locks in the $1 litre milk deal long term.
As I see it, this is a purely defensive move by Coles to lock up a MG for their own use plus I see it as a way of indirectly silencing critics of Coles who may be members of a co-op. Coles can now say they are dealing direct with Aussie farmers (Co-op) and keeping profits in Australia (just dont mention the effect of $1 milk on long term viability of dairy farms…)
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Hi Julie and Ian,
The deal obviously suits Coles, which can now trumpet that it is closer to being “the farmer’s friend” than Woolies.
Strangely enough, it seems as though it will help Victorian farmers like me but the impact on NSW farmers is less clear.
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