Coles will pay a whopping $5.25 million to Norco dairy farmers following an investigation by the Australian Competition and Consumer Commission (ACCC) which alleged that the supermarket giant failed to pass on the full profits of a 10 cent price hike intended to help those farmers impacted by drought.

On Thursday the consumer watchdog revealed that, following its investigation, Coles will pay a lump sum to Norco Co-operative Limited who will then distribute the funds to its dairy farmer members, with ACCC Chair Rod Sims describing the behaviour as an “egregious breach of consumer law”.

The investigation was launched after claims arose that Coles had failed to pass on the full benefit of its 10 cent price rise on 2l and 3l bottles of Coles branded milk, which was announced in March this year, to dairy farmers across the country, despite marketing materials distributed by the supermarket suggesting that they would do so.

“We were fully prepared to take Coles to court over what we believe was an egregious breach of the Australian Consumer Law. We believe we had a strong case to allege misleading conduct by Coles,” Sims 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. 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.”

The ACCC’s investigation focused on claims that when an unrelated cost per litre price increase of 6.5 cents kicked in on April 1, Coles reduced its payments to Norco under the 10 cents per litre (cpl) retail price increase from 10 cpl to 3.5 cpl.

Sims added: “Coles allowed farmers, consumers and the Australian public to believe that its 10 cpl price rise would go straight into the pockets of dairy farmers, when the ACCC alleges this was not the case for Norco farmers. We are pleased that Norco farmers will now receive additional money, commencing within seven days.”

Coles announced it would be hiking the price of its milk earlier this year. At the time CEO Steven Cain said: “Coles sources 100 per cent of our Coles Brand fresh milk from Australian farmers, many of whom are struggling as the impact of drought compounds ongoing challenges in the dairy industry.

“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. However, we know that many dairy farmers cannot wait for structural reform to be delivered so we are moving to provide relief right now.”

As well as the lump sum paid to Norco, which covers the period between April 1 and December 1 2019, Coles will then pass on the additional 7 cents per litre to Norco farmers between December 1 2019 and at least June 30 2020. The additional 7 cents per litre is a greater sum than the 6.5 cpl amount cited by the ACCC.