Coles will attempt to repair the reputational damage caused by $1 a litre private label milk by launching a new milk brand next week that will funnel cash into a hardship and innovation fund for struggling Victorian dairy farmers.
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Coles unveiled the new brand in May – days after processor Murray Goulburn slashed farmgate prices by 15 per cent – and promised to sacrifice profits by diverting 20¢ a litre from sales to the fund.
Coles registered the Farmers Fund name and logo last month and is preparing to launch the new product, which will be processed by Murray Goulburn, in the third week of August.
Coles has not yet revealed the shelf price of the Farmers Fund product, but it will sell at a premium to its $1 a litre private label milk and is likely to be in line with Woolworths' Farmers Own brand, which retails at $3.25 for two litres and provides above-average prices to small groups of farmers in several states.
Coles' decision to launch the Farmers Fund brand has received a mixed reception from the dairy industry.
The Victorian Farmers Federation, which will help administer the fund, has applauded the move and welcomed Coles' decision to seed the fund by diverting $1 million from its Nurture Fund.
However, dairy farmers have denounced the fund as a cynical stunt, saying Coles could do more to help dairy farmers by paying suppliers such as Murray Goulburn more for milk or by diverting 20¢ from every litre of Coles' private label milk.
"It would be sensible for them to move away from $1 a litre milk, which is devaluing the product generally," said acting Australian Dairy Farmers president David Basham.
"But I recognise that a large percentage of consumers need $1 milk to make their budgets work and we don't want to be forcing that part of the population away from milk," Mr Basham said.
Fund to raise $2.5m
The Farmers Fund brand is forecast to raise about $2.5 million, including the $1 million contribution from Coles' Nurture Fund, whereas if Coles increased the price of private label milk by 20¢ a litre it would raise $145 million nationally.
Coles has resisted industry and political pressure to raise the price of private label milk, saying it would harm consumers, particularly those with a weekly shopping budget of $150.
Mr Basham said Coles' strategy gave consumers the option of supporting Victorian dairy farmers directly by choosing the Farmers Fund brand instead of Coles' private label milk.
Figures released by Dairy Australia show that consumers are prepared to pay more for milk if they believe it will help dairy farmers.
Sales of branded milk surged while private label milk plunged in the weeks after Murray Goulburn and then Fonterra slashed farmgate prices in May and June.
In the weeks after the farmgate price cuts the share of company branded fresh milk sold in supermarkets soared from about 35 per cent to 51.9 per cent – the highest level since 2010, when branded milk sales accounted for 58 per cent of supermarket milk sales. The share of private label milk slumped from about 65 per cent to 50 per cent.
"The private label share of supermarket sales of fresh white milk was tracking around 65 per cent and branded was around 35 per cent – following May we have seen that totally swing around," said Dairy Australia's group manager for trade and industry strategy, Charlie McElhone.
The spike in branded milk sales has eased in recent weeks but branded share is tracking around 50 per cent, 15 per cent higher than before the latest milk price controversy.
"There has been a significant consumer response," Mr McElhone said.
This story first appeared on The Australian Financial Review.
