Coles will pay a $2.8 million lump sum, plus ongoing extra milk payments for at least six months, after apparently unwittingly underpaying dairy farmers in northern NSW and southern Queensland.
The payments, to total about $5.25m, mean farmers supplying the northern NSW dairy company, Norco, have actually lucked two milk pay rises since Coles ended its long-running and controversial $1 a litre retail price on house brand milk in March.
The latest payments follow an Australian Competition and Consumer Commission investigation into whether Coles fully passed on the 10c/l price rise promised to producers when its eight-year $1 milk era finally ended.
The ACCC said the Norco Co-operative, which processes the discount Coles brand milk for Queensland and northern NSW, was only paid an extra 3.5c/l after the widely publicised Coles announcement on March 19.
For its part, Norco had not expected to ever see an additional 6.5c or 7c, and was unaware of the recent discussions between Coles and the ACCC.
We're very happy to be able to take these proceeds and pass them through to our members
Back in March, as part of its five-year contract with Coles, the co-op had already negotiated a 6.5c/l farmgate payment rise with the retailer because farm milk production costs had spiked dramatically due to drought.
This happened just weeks before Coles management had opted to end $1/l milk sales, committing to pay more to all its house brand milk suppliers, including those supplying Saputo's Murray Goulburn bottling plants which pack Coles milk in Sydney and Melbourne.
"Certainly, it (the latest Coles payment offer) was a shock to us," said Norco chief executive officer, Michael Hampson.
"We're very happy to be able to take these proceeds and pass them through to our members, who will definitely appreciate them.
"It's very good for our farmers to know there will be an additional $5m paid over the balance of the financial year, in these times of significant adverse climatic conditions which we continue to face in northern NSW and Queensland."
Coles has confirmed it will pay the farmer-owned Norco $2.8m within a week, to be distributed to farmers, plus an additional 7c/litre for the two- and three-litre bottled house brand milk supplied by Norco until the end of June, or possibly longer.
The extra 7c/l payments will stop when the full $5.25m farmgate amount has been reached.
Asked whether Norco had felt Coles had already met its obligations to Norco farmers, Mr Hampson said the co-op had received 10c/l from Coles after March 19 "and we passed 10 cents on to our members".
"We increased our price to the farmers by 6.5c/litre and Coles paid us a top up payment of 3.5c," he said.
We were fully prepared to take Coles to court over what we believe was an egregious breach of the Australian Consumer Law
However, the ACCC investigation found the earlier 6.5c payment increase arrangement between Coles and Norco, which was due to commence on April 1, was not related to the Coles 10c retail price rise to pay all its milk suppliers.
The investigation found Coles had effectively cut its payments to Norco after the 10c retail price increase to just 3.5c/l.
"We were fully prepared to take Coles to court over what we believe was an egregious breach of the Australian Consumer Law," said ACCC chairman, Rod Sims.
"We believe we had a strong case to allege misleading conduct by Coles."
Asked whether the ACCC's assertion that the 6.5c/l was an "unrelated" payment, Norco's Mr Hampson could only say; "in terms of what had occurred, the price went up by 10c/l and we paid 10c to our farmers".
A Coles spokesman said in order to avoid an unnecessary dispute with the ACCC, and to provide immediate much-needed extra support for Norco farmers dealing with the ongoing drought and bushfires, the supermarket had made the proposal to pay an extra 7c, taking the total increase Norco farmers received for their milk to 17c/l.
"The investment of an additional 7c/l for two and three litre Coles Brand milk purchased from Norco between April 1 this year and at least the end of June 2020, is on top of the 10c Coles has been paying since March," he said.
Although Coles disagreed with the ACCC's interpretation of the issues, it respected the regulatory process.
The ACCC's Mr Sims said Coles' commitment had avoided the prospect of court action which would have taken many months if not years, with no guarantee any money would have been paid to farmers as a result.
"Coles allowed farmers, consumers and the Australian public to believe its 10c/l price rise would go straight into the pockets of dairy farmers, while the ACCC alleges this was not the case for Norco farmers," Mr Sims said.
"We are pleased Norco farmers will now receive additional money, commencing within seven days.
"We take commitments made to us very seriously.
"The ACCC will be keeping a very close eye on Coles to ensure they follow through on this commitment, and we are not ruling out future litigation if necessary."
Milk industry advocacy group Dairy Connect's chief executive officer, Shaughn Morgan, said it was deeply concerning Coles "inadvertently failed to pay" money it said it would direct to farmers.
"It is good the ACCC has investigated the issue and we hope that this will help to prevent this happening again."
Norco's Mr Hampson said the co-op would communicate with its farmers so they understood how the additional proceeds would relate to their monthly farmgate milk payments.
He emphasised all previous levy payments received from Coles had been paid to farmers, and the unexpected additional proceeds would be paid as soon as possible.
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The story Norco farms win 7c/l milk pay bonus from Coles after ACCC inquiry first appeared on Farm Online.