Farmers may be creamed under Woolies milk deal

Woolworths has unveiled plans for a new milk brand which it says will mean a better deal for struggling dairy farmers, but not everyone is convinced it will work.

The dairy industry says it is in crisis following a price war between Coles and Woolworths which saw the price of milk slashed to just $1 a litre.

Now, Woolworths is trialling a scheme of direct price negotiations with a group of farmers in the Manning Valley, on the New South Wales mid-north coast, who will sell milk directly to the supermarket giant under the Farmers' Own label.

Woolworths and dairy farmer Tim Bale made it look like love at first sight when they got together to promote this latest initiative.

"We will get a higher price for milk, we will sign long-term supply contracts with Woolworths, we will have a say in how our milk is sourced and marketed," Mr Bale said.

He says he believes the benefits will flow to the wider industry.

"We believe if we can get a higher price that'll help lift everybody else's price as well," he said.

There was precious little detail about the deal but Woolworths seized the PR advantage, painting itself as a business which had dairy farmers' interests at its heart.

A statement issued by Woolworths quoted Mr Bale praising the supermarket's initiative.

"There's no doubt that consumers like $1 milk but we think they also recognise that farmer deserve a fair price for what we produce.

We are looking forward to putting a great new product on Woolworths' shelves that is fresh, locally produced and tastes great," he said.

"It is to Woolworths' credit that they have embraced this idea and are committed to making it work in partnership with dairy farmers in the Manning Valley." The Manning Valley farmers group is hoping for a 10 to 15 per cent price increase, but the plan first needs approval from the Australian Competition and Consumer Commission (ACCC).

ACCC chairman Rod Sims says he supports the concept.

"Generally, most collective bargaining applications get through because we think it's an effective way for people to work, so it's good if they can find another outlet," he said.

"If there's other avenues for farmers to sell their milk that can only be a good thing.

"The fact that Woolworths might be reacting to public opinion, I think that's what large companies do all the time.

They need to be aware of their role in society and act accordingly." But the Dairy Farmers Association is warning the deal may leave some worse off.

The Association's Nick Green says direct purchasing does not necessarily mean farmers will get a better deal.

"Unfortunately it doesn't address some of the key issues affecting returns to farmers with regards to creating a more viable supply chain," he said.

"It's an interesting development...

It is an example of Woolworths considering the interests of farmers, from the viewpoint that farmers are struggling to make a profit and struggling to make returns on their investment.

"But ultimately it doesn't address the key issue of $1 per litre milk and the fact that that's simply unsustainable and needs to change." He says direct selling from farmers to retailers was introduced in the United Kingdom several years ago.

"It's fair to say that the results were mixed.

Some farmers benefited from the approach while others unfortunately didn't, and it was the majority who didn't benefit from a direct relationship between themselves and the retailer," he said.

The Farmers' Own milk will hit Woolworths' shelves in New South Wales around the middle of the year.

Take a look back at 7.30's report on the dairy industry from earlier this year:

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