The acquisition will give Coles more control over its milk supply, room to innovate and potentially reduce overhead costs, he said.

Australian milk production has declined from over 11,000 million litres in 2001 to just over 8000 million litres a year and is forecast to keep falling amid high farmgate prices, costs of production, long hours, and prices that were kept low for a long time.

The smaller milk pool puts pressure on major dairy processing facilities like Saputo, Harvey said. “All the companies are looking at their network and making adjustments to new reality of not having as much milk for manufacturing.”

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ANZ head of agribusiness insights Michael Whitehead said the acquisition is well-placed to benefit the supermarket giant. “The [milk production facilities] are some of the most modern processing plants in Australia, so that means they require less labour, which is very good in this day and age,” he said.

It complements a trend of retailers and supermarkets around the world bringing more pieces of their supply chain into the fold, such as meat processing and wine, Whitehead said.

“In this reasonably rapidly shrinking national pool of milk, supermarkets are looking to do what they can to tie up as much as they can.”

The two sites’ 48 employees will receive offers to transfer their employment to Coles. Existing relationships with farmers will not be affected by the acquisition.

Saputo Dairy put the two processing facilities up for sale in order to “further optimise its operating model”, the company said in a statement.

“As the Australian dairy industry landscape continues to evolve, this proactive measure aims to further adapt [Saputo’s] manufacturing network and is designed to strengthen our market competitiveness,” said Saputo international chief operating officer Leanne Cutts.

Saputo founder, president and chief executive Lino Saputo said the company wanted to strengthen its position as a high quality, low-cost processor.

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“This marks an important step in executing our long-term vision for success in Australia as we maintain a sharp focus on efficiency to ensure we maximise the return on every litre of milk,” Saputo said in a statement.

The acquisition is subject to approval from competition watchdog, the Australian Competition and Consumer Commission (ACCC), and is expected to be completed later this year.

In 2018, the ACCC expressed concerns about Saputo’s attempt to purchase Murray Goulburn, which produces Devondale, that ended up going ahead in $1.3 billion deal. Saputo then offered to divest the Koroit plant, which allayed the commission’s competition concerns.