Dairy owners say their milk is vanishing from shelves after they refused Coles's profit margin demands (2024)

A small Victorian milk company says supermarket giant Coles has removed its products from 65 Victorian stores in retribution for refusing to give the supermarket a bigger profit margin.

From next month, Gippsland Jersey milk will only be stocked in about 16 Victorian Coles supermarkets, leaving the business with two weeks to find a new home for thousands of litres of milk.

Sallie Jones, who started the company with dairy farmer Steve Ronalds in 2016, said the decision came as a shock.

"We've gone from being awarded Australia's best milk to then being removed off the majority of Coles shelves, which is super disappointing," she said.

"The reality is, [Coles] is a big business and it comes down to margin for them and we're not able to give them the margin that they need.

"We are not in the business of going broke just so we can have milk on the shelf of Coles.

"There's so much power that these big supermarkets have in controlling our food system."

Ms Jones said she's worried there could be further retribution from Coles for speaking out.

Supermarket's own brands largest sellers

Not only are small locally owned food producers like Gippsland Jersey competing with large multinational milk companies, they are also competing with the supermarkets' own brands.

Coles began sourcing milk directly from farmers in 2019, and in December the supermarket was cleared by the competition watchdog to buy its own milk processing plants, despite farmer concern they would lose transparency and bargaining power.

According to IBISWorld data, over 55 per cent of supermarket milk sales are "private label", meaning the product is directly sourced and branded by the supermarkets.

The demand for supermarkets' own labels took off after $1-a-litre milk was introduced in 2011 by the big supermarkets, slashing the price by one third, something farmers said crippled the industry.

The growth in private-label supermarket brands since then has made them the largest end-market for milk and cream products.

"Private-label milk remains cheaper than branded milk and has remained a more popular choice among consumers since 2018-19," the IBISWorld report said.

"This trend is likely to continue, with supermarket private labels competing with branded milk and cream products."

Foreign companies own big dairy brands

Much of the fresh milk and other dairy products sold in supermarkets across the country is produced by foreign-owned companies.

These include major dairy brands such as Pauls, Devondale, Sungold, Great Ocean Road, Australian Dairies, Bega Cheese, Western Star, A2 milk, Vaalia, Ice Break, Harvey Fresh and King Island Dairy.

The largest Australian-based fresh milk and cream manufacturer is French-owned Lactalis, which has Woolworths contracts for its private-label milk, and which holds a 13 per cent share of the market, producing $638 million in revenue for 2023-24, according to IBISWorld data.

The next largest are Canadian company Saputo with a 10 per cent market share ($487 million), and ASX-listed Australian company Bega Cheese with a 9.6 per cent share ($459 million revenue).

Small local and independently owned Riverina Fresh and Norco Co-op are the fourth and fifth biggest local milk and cream producers.

'How do we compete with this?'

Ms Jones said smaller, local milk processors were being muscled out of the market by the major supermarkets and multinational dairy companies.

"Gippsland Jersey has to then compete with that," Ms Jones said.

"We're just a little player … we're all about the heart and soul of our brand."

She said the prospect of her products disappearing from supermarket shelves left her feeling distraught.

"I was getting emotional – saying, 'How do we compete with this? How do we win?'"

The major supermarkets have been accused of cancelling contracts or giving products poor placement in stores if suppliers complain about how they are treated.

In a statement to the ABC, Coles said customer choice was important and that it regularly reviewed ranges on offer to understand how items were being received by shoppers.

"We remain committed to continuing to support independent and local producers, and from July, we will focus on selling Gippsland Jersey in 16 stores in Victoria where we see most demand for this local brand from customers," it said.

Supermarkets under scrutiny

Farmers have said they are unwilling to give evidence to a parliamentary committee on supermarket prices without reassurance their supply agreements would be protected.

Six inquiries were launched into the behaviour of supermarkets after concerns about a big hike in food prices, at the same time as the two large supermarkets posted large profits.

One inquiry recommended hefty fines for grocers which mistreat suppliers, while another review by former Labor minister Craig Emerson recommended a mandatory supermarket code of conduct with financial penalties for breaches.

Ms Jones said she was "100 per cent" concerned about backlash from Coles for speaking publicly.

"We wanted to post something on our Facebook page … letting our shoppers know that end of June, Gippsland Jersey won't be available on the majority of Coles supermarket shelves," she said.

"We don't want to get blacklisted from Coles, we need to work with these major supermarkets."

Call to support small producers

"But unfortunately, we're going to be removed.

"We're just hoping that the phones start ringing and that we can supply more stores to absorb that extra stock that won't be going to Coles."