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 on Thursday said Coles did not pass on in full a 10 cents per litre price increase to Norco, which supplies the chain's own-branded milk, despite advertisements claiming farmers would receive it.
The ACCC said it had been prepared to take the supermarket giant to court for what it believes was "an egregious breach of the Australian Consumer Law", but that its investigation has been resolved after Coles agreed to up its payment by seven cents per litre.
That totals about $5.25 million between April 2019 and June 2020, the ACCC said.
"Accepting this commitment means that farmers will receive additional payments from Coles, with the majority of the money to be paid to Norco within seven days," ACCC chair Rod Sims said.
"Court action would also have taken many months if not years, with no guarantee that any money would have been paid to farmers as a result."
Mr Sims said Coles allowed farmers, consumers and the broader public to believe that its 10 cents per litre price rise would go straight into the pockets of dairy farmers.
The ACCC said it understands that Coles did pass on the increase to other dairy processors, but not to Norco, which also sells milk under its own brand.
Coles has been contacted for comment.