Coles will pay its milk processor, Brownes Dairy, an extra five cents per litre of milk to ensure West Australian dairy farmers are not impacted by recent cuts to retail milk prices.
Coles merchandise director John Durkan said it had asked Brownes to pass the price increase directly on to dairy farmers in WA.
On January 26 Coles announced that it would cut the price of its home brand milk to one dollar a litre on two and three litre packs.
The supermarket giant said it increased the annual contract price to its milk processors in mid-January, a week before it reduced the retail price of milk.
"We've said from the outset that Coles was fully funding the retail price cut on our own brand milk, and that we had no intention of this price cut being passed onto dairy farmers," Mr Durkan said.
"We have volunteered this additional payment as further evidence of our commitment to deliver better customer value on milk, while not adversely affecting the incomes of dairy farmers.
"We believe this additional payment to Brownes should give WA dairy farmers greater comfort that they will not be impacted by the Coles brand retail milk price cuts."
Brownes said the price rise partially addressed the negative financial impact it experienced following a change to its distributions arrangements with Coles.
"The Coles home brand contract represents a very small part of the Brownes overall business," a statement released by Brownes' New Zealand-based owner, Fonterra, said.
"Brownes confirmed its farmgate pricing for the year to June 2011 in November last year.
"We have not changed our position and remain totally committed to paying farmers as we promised.
"Recent milk market dynamics and pressure on our margins have not changed that position."
