UP to 70 million litres of new Australian milk is needed to fill a Coles cheese contract.NSW-based dairy processor Bega Cheese has won the right to supply Coles' entire house-brand cheese contract, the equivalent of 19,000 tonnes a year.
Previously more than 9000 tonnes a year of this contract was sourced from New Zealand, but Bega has indicated it would take on up to 70 new Australian suppliers to meet this demand.
Bega already packs about 14,000 tonnes of Coles retail cheese products for a third party, this new contract will mean the processor will need an additional 7000 tonnes to fill the order.
Bega Cheese chief executive Aidan Coleman said the Coles contract was a great opportunity for the company and it would inject an extra $30 million into the Australian dairy industry.
He said the five year domestic deal with Coles provided stability for the company and farmers, but stopped short of committing to changes in farm-gate prices.
"The five year outcome we have effectively assured part of our product for the next five years," he said.
"Increased demand for Australian origin product means there will be increased demand for Australian milk, the simple economies of supply and demand will eventually play out, (but) we are not committing to milk price changes at this stage."
Mr Coleman said Bega Cheese had been advertising for additional supply throughout the three Victorian dairy regions and milk quality would be a factor in picking up new suppliers.
Bega flagged it could need up to 70 new suppliers as a result of this contract, but Mr Coleman said with the more favorable seasonal conditions in Victoria the company was hoping for a total milk increase of 3-4 per cent this season across the existing supplier network.
This Coles deal will represent about 10 per cent of the Bega Cheese business and Bega plans to upgrade its Coburg plant, which it purchased in 2008, to meet the contract requirements.
This could also generate another 30 new roles across the company.
Bega had to compete with other companies for the Coles contract, Mr Coleman said its success had a lot to do with its cheese manufacturing innovations and positive track record with long-term contracts with other business partners both internationally and domestically.
Southern dairy processors have already gone to great lengths to secure additional supply this season.
South-west manufacturer Warrnambool Cheese and Butter, has been running advertisements in newspapers to entice farmers across to its company.
Bega's demand for an additional 70 million litres for the domestic market would add further pressure to the national milk pool.
Australian milk production has declined in the past decade from peaks of 11.2 billion litres in 2001-02 to 9.1 billion litres last season.
For the past five years the national milk pool has hovered between 9-9.5 billion litres as a result of drought and more recently low farm-gate milk prices.
Coles merchandise director John Durkan said Coles wanted a partnership that meant all its house-brand cheese was made in Australia.
"Coles was very keen to partner with an Australian dairy industry processor who would produce all of our cheese locally, and not rely on imported product,'' he said.
Bega Cheese will begin producing Coles brand cheese from February next year.
Meanwhile, Bega Cheese, which listed on the Australian Securities Exchange last month, recorded a profit after tax of $21.6 million for the year ending June 30.
The Bega business generated net operating cash flows of $73.9 million and earnings before interest, taxes and amortisation of $52.2 million.