After testing the market in NSW and Vic, Coles will expand its direct milk purchasing plans to farmers in SA and WA.
The supermarket's private labelled Coles fresh white milk sourcing model will offer contracted producers guaranteed farmgate prices.
Coles launched its new milk sourcing strategy in Vic and southern and central NSW last July, signing up farmers with what it promised were competitive farmgate prices to match, or beat, rival milk brands.
The deal effectively bypasses the traditional supermarket buying model which contracted processors to source milk from farmers and supply it from their own pools.
Coles' house brand fresh milk was previously sourced entirely from dairy processors under contracts which relied on processors rather than the retailer to set the farmgate price.
The new model has has Coles milk packed under contract, as usual, by the processor.
Under its new sourcing model, Coles pays a farmgate price directly to farmers, and then relies on a toll processing agreement.
In SA and WA, it has set up toll processing arrangements with Lion Dairy and Drinks, Brownes Dairy and Lactalis Australia.
Dairyfarmers are being offered one- or two-year contracts, with guaranteed prices.
Coles commercial and express chief executive Greg Davis said the arrangement would provide farmers with income certainty and the confidence they needed to plan for the future of their business.
"By offering farmers the opportunity to lock in a price and giving them choice on the length of contract, Coles is investing in the long-term sustainability of our suppliers and the Australian dairy sector," he said
Coles was pleased to be able to collaborate directly with more Australian dairy farmers.
"We're proud of the relationships we have built with our directly-contracted farmers in Vic and NSW to buy their high-quality milk, and we're thrilled to extend that model to work with farmers in SA and WA," he said.
Mr Davis felt new business models to improve returns for dairyfarmers were an important part of addressing the long-term structural issues facing the dairy industry.
"We are committed to investing in sustainable dairy farming, and the success of our direct sourcing model shows that it can make a real difference to our suppliers," he said.
In addition to creating a dedicated milk pool, Coles had leveraged its direct relationships with industry stakeholders to establish the Coles Sustainable Dairy Development Group (CSDDG), which invested in on-farm sustainability measures and is managed in collaboration with farmers.
Farmers in SA and WA interested in contracting part or all of their milk production to Coles can email firstname.lastname@example.org or phone 1300 995 141.