Coles has agreed to pay dairy co-operative Norco $5.25 million more for its milk after the consumer watchdog flagged what it says looked like misleading claims about price increases being passed on to farmers.
The Australian Competition and Consumer Commission began investigating Coles following a promotional campaign in March in which the company promised it would "pass the extra 10c per litre to processors who will distribute all of the money to the farmers who supply them with milk for Coles brand".
Coles confirmed it will pay an additional 7 cpl for 2 litre and 3 litre Coles branded fresh milk, which amounts to around $5.25 million to Norco for milk supplied between April 1, 2019, and June 30, 2020, resolving the ACCC's investigation.
The ACCC believed the 10 cents should have come in addition to an unrelated 6.5 cents per litre rise Coles had already agreed with Norco, but which had not yet taken effect. "However, we know that many dairy farmers can not wait for structural reform to be delivered so we are moving to provide relief right now".
ACCC Chair Rod Sims said the majority of the money would be paid to Norco farmers in Queensland and NSW within a week.
Norco dairy farmers will receive their payments within seven days.
"We were fully prepared to take Coles to court over what we believe was an egregious breach of the Australian Consumer Law".
Coles had instead added an additional 3.5 cents payment to Norco's per litre price.
Norco chief executive Michael Hampson said the payment will go a long way for struggling farmers.
A social media from Coles about the 10 cent price increase.
While a price hike usually draws criticism, the supermarket revealed that the money would be passed on to dairy farmers and milk processors.
Sims said Coles advertising and media releases led the Australian public to believe the price increase would go straight into the pockets of farmers.
Coles will then also pass on the additional 7 cpl to Norco farmers for the period between December 1, 2019, and at least June 30 2020 by increasing the base milk price paid to Norco for 2 litre and 3 litre Coles branded fresh milk by 7 cpl.
"Coles supports proposals to make Australia's dairy industry more sustainable, and we are continuing to explore long-term solutions with government and industry stakeholders".
"We were engaging with them and they would've known we were on the way to the court room", Mr Sims said.
Despite agreeing to the payout, Coles has continued to defend its commercial arrangements.
"This is on top of the 10c per litre on 2L and 3L Coles Brand milk that Coles has been paying since March".