The company says it intends to deliver more competitive farm gate milk prices but has not yet disclosed the price it intends to pay.
Under the new model, dairy farmers can decide between one-year, two-year or three-year contracts.
Coles has previously relied on dairy processors to purchase milk from farmers to supply for Coles Brand milk, under contracts that allow the processor rather than Coles to set the farm gate price.
Coles will pay dairy processor Saputo to process and bottle the milk under a toll processing agreement.
Coles will also offer farmers contracts with guaranteed prices for two years and a floor price in the third year with flexible options of supply.
Coles’ chief operating officer Greg Davis said in addition to offering a fair and competitive price, dairy farmers would have more choice regarding the length of their contract and more certainty around income.
“Over many years Coles has developed direct relationships with thousands of meat, seafood and fresh produce farmers supplying to our stores; it is a successful model, and we think it can work in dairy too.”
Mr Davis said the new sourcing model was an important first step to improve returns for dairy farmers while the industry and government continued to work towards a long-term solution to structural issues facing the industry.
“If the model works as we hope it will, we will look for opportunities to expand the footprint to other milk-producing regions and potentially other products in the dairy case,” he said.
Mr Davis said the price of Coles Brand fresh milk would remain the same.
Farmers in Victoria and southern and central NSW interested in contracting part or all of their milk production to Coles can send an expression of interest to milksupply@coles.com.au
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