A NATIONAL Foods spokesman described some dairy groups' expectation that a 5c/L increase in Woolworths supermarket house brand milk would flow back to the farm gate as nonsensical.
Last week, NF was named as the successful bidder on all Woolworths' brand milk contracts for the next two years, during which time the retail price of house brand milk would rise by 5c/L.
Dairy farmer groups were quick to state that the majority of the increase should be passed back to farm gate.
However NF spokesman Ian Greenshields said the company's profits were shared as dividends to shareholders unlike in a co-operative.
"We are not a co-operative and therefore any price rise does not automatically get passed back to suppliers," he said.
He said NF spent millions of dollars for other supplies such as stationary, fuel, packaging and equipment.
"The expectation that one class of suppliers should receive any increase we get is simply nonsensical," he said.
He said the price NF paid for milk would depend on competition and supply and demand factors.
NF placed the lowest bid in this year's Woolworths tendering process, which included NSW-based Dairy Farmers co-operative, Pauls (Parmalat) Qld, and Peters and Brownes (Fonterra), WA.
"I am very pleased with the outcome of this tender as it will deliver, on a phased basis, a cost increase to relieve the pressure on milk producers and processors of some 5c/L and provide certainty for milk producers," Woolworths CEO Roger Corbett said.
Australian Dairy Farmers Federation CEO John McQueen said the increase was "on the positive side."
"We would expect NF to honour the Woolworths sentiment that the majority of the 5c/L should go to farmers over the two years," he said.
Head of Woolworths buying and marketing, Bernie Brookes, said the company's brand milk made up less than 10pc of the white milk market, although this was an increase of 2pc since contracts were first tendered after deregulation in 2000.
He said 52pc of the white milk was still controlled by independent supermarkets.
The national supermarket milk tendering process, although conducted on a state basis, effectively made the price of milk the same across Australia.
Mr McQueen said he expected the Coles supermarket contract prices would follow Woolworths as had happened in the last round.