Bittersweet as Devondale milk reaches Coles shelves

Photo: The Weekly Times

Three men in suits – a prime minister, supermarket supremo and the MD of a dairy processor – stood drinking glasses of frothy cold milk on the steps of the first MG Co-op factory dedicated to supplying fresh Devondale-branded and private label milk to Coles. Beneath the froth, however, doubt among the very dairy farmers sponsoring the opening celebrations continues to simmer and bubble.

Ever since the Coles deal was announced, there have been skeptics. Plenty question whether it is possible to make money supplying milk that retails at a dollar a litre and the concept alone that milk could be priced cheaper than water offends many dairy farmers.

The speculation and anger reached new heights this week, however, after a scathing opinion piece in the Australian Financial Review that says MG managing director, “Helou ‘in a hurry’ has a reputation at MG, as he did at SunRice, for being hell bent on revenue over margins.”

The AFR also writes, “MG’s margins are non-existent and its deal has locked the whole industry into $1 milk for a whole, punishing decade, structurally squeezing the profit pool.”

All that gloom follows the journalist’s derisory comments about the Sydney factory being at least one month late, $30 million over budget and the trigger for contractual penalties that can only be imagined. And, yes, when the deal was announced, MG’s farmer shareholders were promised the factories would cost “just” $120 million. MG now puts that figure at $160 million, hinting at a cost blow-out of staggering proportions.

To top it all off, Coles ads pimping our cherished, premium Devondale-branded milk at just 75 cents per litre sent shockwaves through the Australian dairy community on Twitter yesterday.

This ad went viral on Twitter for all the wrong reasons

This ad went viral on Twitter for all the wrong reasons

So, I sent a list of questions off to MG’s executive general manager shareholder relations, Robert Poole, who to his great credit offered these explanations:

Q. What are the actual costs of the two factories?
A. Following our initial cost estimates for the two factories we decided to invest in additional capability and capacity to maximise efficiencies through automation and layout. This brought the total investment in our Melbourne and Sydney facilities to approximately $160 million. This provided for future operational cost savings.

Q. Has MG been unable to supply milk to Coles on time?
A. We have had some shortfalls, however contingency plans were promptly enacted . Laverton is ramping up towards its full capacity and at the moment is servicing Coles requirements in Victoria plus the Devondale Brand both in Victoria and NSW. Our NSW plant remains scheduled to commence production in early August, at which time MG expects to be able to be supplying all of Coles requirements in Victoria and NSW

Q. If so, what are the penalties?
A. This is a contractual matter between MG and Coles.

Q. Does MG have adequate raw milk supply for the Sydney factory now?
A. In New South Wales, we have already sourced more than 180 million litres of milk. This is more than enough to cover our initial requirements of approximately 100 million litres per annum in this market and allows for future growth.

Q. When do you expect the Sydney facility to be supplying milk Coles with its full requirement of milk?
A. The site is being commissioned through July with production scheduled to commence early August, reaching full capacity by the end of August.

Q. When will the investment break even?
A. Both sites are forecast to add positively to MG’s farmgate price from year 1.

If the Murray Goulburn deal with Coles can withstand a 33% cost-overrun and Coles’ penalties while adding to the milk price from year one, this must be an extraordinarily lucrative contract indeed. Who would have thought the Down, Down, Down folks could be so generous?

While you’re chewing that over, take a minute to look at the new Devondale ads via my fellow dairy blogger Lynne Strong, who tells me her post discussing the commercials has gone viral attracting around 1500 views in 24 hours. MG cannot be accused of being boring!

12 thoughts on “Bittersweet as Devondale milk reaches Coles shelves

  1. Gosh! Full cream (wonder how natural or if reprocessed or even an artificial cream substitute used) milk now at an effective 75 cents per litre to the end consumer.

    Maybe, just maybe, skinny or skim milk where other elements of the raw milk (e.g. fat, protein, casein, whey, other carbohydrates etc.) can be extracted and processed for other higher yielding saleable products and lower cost base substitutes put in their place.

    So what exactly is the “product” being offered at 75 cents a litre?


      • Why don’t you think it’s at the cost of the product? If milk was pure, and unadulterated, why have I been drinking soy for 10 years thinking I had a lactose problem? Why now do I have no problem drinking pure, unhomogonized milk fresh from a local dairy? The milk is being processed and messed around with, and we are all suffering.


        • I don’t know Melody. What I do know is that to become an Australian milk processor is one of the most convoluted, highly regulated processes you could imagine. I don’t think they “get away” with anything!


      • Well Said MilkMaidMarian.
        This isn’t about making a profit (obviously) … it’s about sending farmers broke. And the current $1 per litre is doing that just fine. Imagine how many farmers can go broke at $0.75 per litre? Way to go Suits!
        To deals like this I say “down, down, my thumb is going down” and as for actually supporting this with my hard earned cash … I think I’ll just keep it “4Real” thanks very much.


  2. I can only talk about my own co-op Norco (proudly) with confidence knowing that when the management and directors do a deal they do so knowing that it delivers a profit back to us the supplier shareholders. A recent 3 cent a litre price rise has made us one of if not the highest paid dairy farmers in Australia. I would expect an extra 1cent step up though the year as well. Our own personel price after quality bonuses should be about 63 cents per litre. Norco has spent a lot of money on upgrades in our milk plants as well.How can other milk companies think it is alright to devalue a high value product.


  3. Maybe it is time for a “bit of an explore” by say ummm 4 Corners or some other investigative entity to uncover what really is contained in the $1 or less per litre milk we are getting.

    They could do a double hit, with the first being the make-up and content of the liquid being sold as “milk” compared to more expensive branded milks and secondly see if they could get to the bottom line of who really is creaming (excuse the pun) who in the price war or whether it is just skimming off the top by everyone but the farmer. Anecdotal evidence for both of these is rife across the community and finger pointing is rampant.

    There is no one dairy farmer getting hit by this nor is there just one processor getting the large share of supermarket contracts and it is shared across 2 supermarkets that do control the vast majority of the supermarket spend in this country. So maybe it is a combination of factors that are contributing but it certainly seems the supplier is the one getting hit the hardest.

    Time for a bit of honesty and integrity in the answers and true transparency of the results. However I have to say I can’t see too many processors or the supermarkets wanting to stump up the data for an independent assessment and for all to see. I just find it staggering that milk is cheaper than bottled water and yet the input costs for dairy would be multiples beyond bottled water.


  4. It makes my stomach drop when I read this. I don’t understand how MG fail to understand the risk in what they are doing, not just for the farmers, but also for the rural communities that these families and businesses support.

    Regardless of this, I hope that you and your family are well Marian!


  5. Pingback: For farmers sometimes the light at the end of the tunnel can feel like a train | Clover Hill Dairies Diary

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