Milk price bid: Coles offers bonuses to lock in dairy farmer supplies

A national slump in milk production has prompted Coles to offer bonuses to farmers to lock in supply deals for the next two seasons.

Coles has set a new benchmark in farmgate milk pricing that its rivals will struggle to match. Picture: NCA NewsWire

Coles is trying to lock in 400 million litres of milk supply from southeast Australian farmers by offering bonus payments for those willing to stay with the retail giant for the next two to three seasons.

A letter to suppliers from Coles dairy manager Brad Gorman stated the retailer would not only deliver a step up of eight cents per kilogram of milk solids for the remainder of this season, but was offering bonuses to those willing to lock in longer term.

Mr Gorman said Coles had also introduced a “tenure payment” of 10c/kgMS for those farmers willing to sign on to deliver milk until the end of the 2023-24 season and 20c/kgMS to stay with Coles until June 30, 2025.

Coles states the bonuses are designed to “reward and recognise existing dairy farmers for committing to a longer-term MPA” as well as “offering farmers currently on shorter term agreements the opportunity to commit to a longer term MPA to receive the Tenure Payment”.

“The Tenure Payment will be an additional payment to you on top of your current Price and will not impact any other terms of your MPA.

“Further, should your MPA be terminated prior to the end of the Term, you will retain any portion of the Tenure Payment already paid to you in accordance with any of the rights under your MPA.”

Farmers have until February 10 to sign up to the new longer term deals.

Industry services company Milk2Market commercial manager Richard Lange said his analysis showed the 8c/kgMS step up would average about 5c/kgMS for a farmer on flat production supplying Coles with two million litres a year, delivering a net price (less levies and pick-up charges) of about $9.95/kgMS, excluding any surplus above the contracted volume that receives a lower price.

Signing on for two years to obtain the 10c/kgMS payment lifts the total price for the same farm to $10.08/kgMS across this season and next or $10.18/kgMS if they sign up for three seasons.

Those farmers who sign on for two or three years will receive the 10 or 20 cent payments backdated to July 1, 2022.

The payments are available to farmers in Victoria, southeast South Australia and the south coast of NSW.