Coles milk brand gets sour reception

Coles will launch a new milk brand and divert 20¢ a litre from sales to an independent dairy industry fund, which the retailer said would "provide direct support to farmers and invest in innovation to ensure the long-term future of the dairy sector".

It would also contribute $1 million to the fund.

The decision comes amid warnings dairy farmers will go out of business in the face of low global milk prices.

"It's important that we have a vibrant dairy farming sector, and we can only have that if we work together to ensure the long-term health of the industry," Coles managing director John Durkan said in a statement.

Farmers argue they have little respite from challenging global conditions in their home markets after Coles slashed the price of private-label milk to $1 a litre five years ago. Woolworths followed suit.

"It's incredibly ironic [the fund]," said Victorian dairy farmer Marian Macdonald. "Now that Coles are killing the goose that laid the golden egg they're saying we'd better get some grain under their nose to keep the head up."

Coles is making more money from its private-label milk than when it struck a deal with the nation's biggest milk processor, Murray Goulburn, in 2013 because the prices it pays are pegged to the international price, which has dropped.

When global prices rise, Coles pays Murray Goulburn more for its milk. When it falls, it pays less. Coles pays a processing fee, regardless of the price for milk. The retail price has remained the same at $1 a litre.

Ms Macdonald said she didn't want to look a gift horse in the mouth and welcomed the prospect of funding for dairy farmers.

"We love that [Coles managing director] John Durkan has had an exorcism," Ms Macdonald said.

"Tell him we will forgive him for his past sins. We will even shout him a glass of milk, fresh from the cow."

When Murray Goulburn secured the Coles private-label contract, former managing director Gary Helou argued it could turn a profit from $1-a-litre milk by lowering production costs.

Murray Goulburn is facing a shareholder class action and a probe by the Australian Competition and Consumer Commission after it shocked farmers and investors by slashing the price it would pay its farmers for milk.

It will struggle to meet half its net profit forecast outlined in the prospectus for its partial float on the Australian Securities Exchange less than a year ago, after management's expectations for Chinese demand for its milk powders failed to materialise.

Coles says its private-label milk accounts for only 6 per cent of Murray Goulburn's production.

Some farmers are calling on Deputy Prime Minister Barnaby Joyce to intervene and establish an independent review of the industry.

Industry group Australian Dairy Farmers has argued a $1-a-litre milk price is unsustainable.

ADF president Simone Jolliffe and chief executive Ben Stapley have meetings with Coles and Woolworths executives this week.

Ms Jolliffe, a NSW dairy farmer, said many farmers were hurt because Murray Goulburn's decision to cut prices came so late in the season, well after budgets were set in place and costs incurred.

She said she wanted to understand the detail of Coles' new milk brand and how the fund would support farmers.

"We would welcome an opportunity to add value," Ms Jolliffe said.