Supermarket Coles will source its own-brand milk directly from farmers in Victoria and New South Wales.
The retailer said it would offer longer-term contracts to dairy farmers from July 2019 under a new sourcing model.
Coles previously relied on dairy processors to purchase milk from farmers with contracts which allowed the processors to set the farmgate price.
Under the new model, farmers in Victoria and southern and central regions of New South Wales can choose from one, two or three-year contracts with Coles where the retailer would directly set the farmgate price for produce.
The new contracts offer guaranteed prices for two years and a floor price (the lowest legal price a commodity can be sold at) in the third year to protect farmers.
Coles said the move would provide greater certainty of income and allow farmers to more confidently plan for their future.
Dairy processor Saputo will be paid by Coles to process and bottle the milk purchased from farmers.
Greg Davis, chief operating officer at Coles, said the new supply model would strengthen the sustainability and long-term resilience of its dairy suppliers.
“In addition to offering a fair and competitive price, dairy farmers will have more choice regarding the length of contract and more certainty around income” he said.
“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.
“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.
The retailer has also pledged to invest $1.9m to improve the sustainability of Australia’s dairy industry.
The money will fund research into more sustainable farming practices, adoption of new technology, more efficient use of pasture, feed and water, and support for business development and talent retention in the industry.
Meanwhile, the Australian Competition & Consumer Commission (ACCC) launched a consultation on its proposal to implement a ‘class exemption’ for collective bargaining.
The proposed class exemption would apply to businesses and independent contractors which form, or are members of a bargaining group, which each have an aggregated turnover of less than $10m.
The exemption would apply to the vast majority of Australian small businesses, and could include groups of farmers wanting to bargain with the companies who buy their produce or small businesses wanting to jointly buy electricity.
Currently businesses have to receive authorisation from the ACCC, in a process which included a payment of $1,000.
“Collective bargaining allows businesses to share the time and cost of negotiating contracts, and potentially gives them more of a say on contract terms and conditions,” ACCC deputy chair Mick Keogh said.
“These arrangements can also benefit the prospective business partner, because it can result in more efficient scheduling or delivery arrangements.”