Woolworths’ rumoured new strategy: Why pay the milk processor when you can go to the farmer direct?

Woolworths could potentially be exploring a new method of buying milk straight from dairy farmers, following the emergence of a global trend which has seen supermarkets bypass distributors entirely.

In the next development of the milk price wars, Woolworths has acknowledged consumer feedback suggests shoppers are unhappy with how the big supermarket treats Australian dairy farmers.

According to The Australian Financial Review, Woolworths executives are considering a change in its relationship with dairy farmers, with executives saying buying milk straight from the source could lead to greater returns for farmers.

SmartCompany contacted Woolworths for comment, but no response was received prior to publication.

Woolworths director of corporate and public affairs Andrew Hall was quoted in the AFR as saying the company has “always believed that the drop to $1 is not sustainable for the dairy industry”.

“As a result, we are looking at trialling alternatively sourced milk products, direct from dairy farmers, that delivers a higher price at the farm gate,” Hall says.

The grocery giant reportedly said creating a better relationship with farmers will help increase the support of consumers. Several customers have been outspoken regarding the attitude of supermarkets towards the dairy industry.

Woolworths’ customer research reportedly revealed consumers were “disgruntled with both [Coles and Woolworths] that they do not look after ‘our’ farmers enough”.

The new plan is dependent on a sourcing deal with farmers to buy the milk direct and then Woolworths would contract out the processing, providing more control over how much farmers are paid and its milk sources.

Such a deal could potentially place even more pressure on the troubled food and beverage supplier industry.

As indicated in research obtained by The Australian Financial Review, the product would be branded as “exclusive” to Woolworths rather than a Woolworths brand “because it implies that WW will draw up new contracts in the best interests of farmers”.

Dairy Australia industry analyst Glen Fisher told SmartCompany dairy farmers have continued to struggle and need to see price increases.

“I think the Woolworths spokespeople have historically said $1 milk is not sustainable and the wider industry is in agreement about that, so they’re on the money there.”

“Farmers have been facing higher input costs and it’s been a tough season, so farmers do need to see some higher farm gate prices,” he says.

Coles and Woolworths have been selling milk for as little as $1 a litre since January 2011 as part of the ongoing industry price battle and dairy farmers have been struggling to remain profitable.

Dairy Australia forecasted the move by Woolworths in its February Situation and Outlook Report saying: “Interest in greater provenance is also likely to have some bearing on new supply and marketing arrangements for fresh drinking milk”.

Fisher says supermarkets in the United Kingdom are already purchasing milk directly from the farmers.

“It’s something that follows developments in other markets such as those in the UK, but I think in the Woolworths case, there will still be some reliance on processors.”

“There might be some benefit to the farmers and there could be a higher farm gate price, but it’s too early to say if that’s going to be the case,” he says.

 

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