April 17, 2013
Parmalat chief Craig Garvin has joined Woolworths in raising concerns about Coles’ $2 billion private label milk supply deal with Murray Goulburn Co-op, saying it threatens to divide and disrupt the dairy industry. “This is potentially a very divisive and a very disruptional strategy; I think farmers should be nervous,” said Mr Garvin, who runs Australia’s second largest fresh milk processor. “There’s a lot of scepticism among farmers and they’re really now starting to look through this deal and what’s really in it,” he told The Australian Financial Review. Mr Garvin said Coles’ 10-year milk supply agreement could be good for Victorian farmers, who already supplied Murray Goulburn, and said the deal guaranteed a decade of cheap private label milk for consumers. However, he said farmers in other states and foreign-owned processors who accounted for most of the drinking milk processed in Australia could be left out in the cold. He questioned whether Murray Goulburn, which processes 3 billion litres of milk a year, would need new sources of milk in NSW and Queensland to fulfil its 200 million litres a year contract with Coles. “I’m sceptical that any new farmers will win a deal out this at all in NSW and Queensland.” Mr Garvin also queried the “premium” Murray Goulburn has promised to pay farmers, pointing out that Parmalat has paid 12 per cent more on average than Murray Goulburn and 6 per cent more than Norco for milk over the last four years. “They have guaranteed a premium but to what? What they have paid in the past?” he said. According to Macquarie Equities, Coles will pay Murray Goulburn 10¢ a litre less for private label milk than it currently pays Lion, which will lose contracts in NSW, Victoria and south east Queensland mid next year. Murray Goulburn is building two new processing plants at a cost of $120 million or 6¢ a litre. Macquarie says Coles is investing less in the milk supply value chain and relying on the new production facilities and a toll processing arrangement with Murray Goulburn to achieve a lower cost of production.