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Woolworths private label milk contract losses will 'impact volumes': Lion

By Mark Astley+

03-Apr-2014
Last updated on 03-Apr-2014 at 14:11 GMT

Woolworths own label milk contract losses will 'impact volumes': Lion

Australian processor Lion Dairy has admitted that being dropped as Woolworths’ private label milk supplier in Victoria and Western Australia “will impact volumes” at two plants.

Earlier today, Australian retailer Woolworths unveiled its latest round of private label milk contracts. Lion Dairy retained deals in South Australia, the Northern Territory, and Tasmania for an additional year from 1 July 2014, but was dumped in Victoria and Western Australia.

Lion will cease supplying Woolworths in Victoria from February 2015 and Western Australia in July 2014, when it passes the baton to Fonterra and Brownes respectively.

In a statement posted on its website, the company said it was “disappointed with the outcome in Victoria and Western Australia.”

“We put forward our most competitive bid in each state, reflecting Lion’s commitment to grow the Australian dairy industry through fair pricing that ensures a sustainable future for the whole supply chain – including farmers and processors – and long terms contact certainty that supports investment," said the statement.

It added, however, that the "decision will impact volumes at Lion's milk processing plants in Chelsea (Victoria) and Bentley (WA)."

"We will work through the detailed implications of this with our teams over the coming weeks," the statement said.

"Certainty of a long-term contract"

While Lion is counting the cost of losing two contracts, Fonterra Australia is celebrating after landing a 10-year private label milk contract with Woolworths in Victoria.

Parmalat Australia was also handed a 10-year contract to supply Woolworths stores in Queensland and a separate two-year deal in New South Wales. Brownes was also awarded a seven and a half contract to supply Woolworths stores in Western Australia.

The extended deals secured by Fonterra, Parmalat and Brownes will, according to Woolworth, allow the processors to "invest in their businesses with confidence that they have a guaranteed buyer for their milk."

“Some producers have told us that with the certainty of a long-term contract they and their farmers can invest and innovate,” said Woolworths managing director of supermarkets, Tieerd Jegen.

“Changes like integrated seals for milk containers and new, hospital grade processing equipment would not be possible without the investment this certainty will bring. It’s these innovations that will see better tasting, fresher milk available in Woolworths stores and we hope our customers will enjoy the difference.”

Fonterra plans to invest more than AU$30m (US$27.7m, €20.1m) to build a new milk processing plant at its Cobden site in South West Victoria. The new facility, which will be commissioned in early 2015, should create 30 new jobs.

“...the proposed arrangement will provide certainty for dairy farmers so they can invest on farm and grow their milk production," said Fonterra Australia managing director, Judith Swales.

"Australia is our second largest milk pool outside of NZ, so we take a long term view and aim to deliver profitability, growth and sustainability in the Australian dairy industry.”

Parmalat Australia CEO, Craig Garvin, mirrored Swales' comments.

"Thanks to our long term agreement, we can confidently progress our longer term manufacturing plans in Queensland as well as offer new long-term milk supply agreements to our farmers," said Garvin.

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