March 26, 2013
Woolworths is pushing ahead with its plan to buy milk directly from farmers, bypassing processors in a bid to deflect criticism that its cheap home brand milk product is undermining the dairy industry. A group of NSW farmers and major processor Parmalat have emerged as Woolworths’ partners in the venture, which would see a new milk brand called “Farmers’ Own” hit supermarket shelves. It would sell for more than $1 a litre, the controversial price set by Coles two years ago, and would be marketed by Woolworths as giving dairy farmers a fairer deal. The price of milk has become a touchstone in the pitched debate over supermarkets and their relationship with suppliers. Allegations of abusive practices by supermarkets are being investigated by the Australian Competition and Consumer Commission. Wesfarmers-owned Coles and Woolworths are seeking to enter into a code of conduct with the Australia Food and Grocery Council. If that fails, they could face a mandatory code being imposed by the federal government. Farmers’ Own milk would be unhomogenised to differentiate it from other milk brands and appeal to people nostalgic for old-fashioned milk. It is understood Woolworths is preparing to make an announcement regarding to new brand at Sydney’s Royal Easter show on Wednesday. Woolworths declined to comment. Internal market research documents obtained by The Australian Financial Review last week detail how Woolworths is worried about criticism that both it and Coles are currently giving farmers a raw deal. Adrian Drury, one of the farmers involved, said only a “handful” of dairy farmers were preparing to sell their milk directly to Woolworths but while Farmers’ Own would launch as a niche product he hoped it would grow. “They want to see how it goes,” he said of Woolworths. “The principle is they are prepared to support the dairy industry.” On Friday the farmers submitted a request with the ACCC to bargain collectively with Woolworths. Parmalat’s involvement is significant as it is effectively agreeing to an arrangement that could reduce its influence over the dairy industry. Currently processors buy milk from farmers and bottle it under their own brands and, increasingly, supermarket brands. The Farmers’ Own”brand would mark the first time supermarkets have dealt with dairy farmers directly, mimicking a trend in the UK. Instead of selling processed milk Parmalat would earn a fee for processing milk already bought by Woolworths. Parmalat declined to comment. Mike Logan of Dairy Connect NSW, which represents farmers and processors said the Woolworths plan represented an opportunity for farmers but not enough would benefit. “We want a solution that’s across the industry. That’s why we want a mandatory code of conduct,” he said.