Woolworths dumps SPC Ardmona tomatoes

The tomato deal has the potential to undermine SPC's $70 million supply deal with Woolworths, which was only made on a handshake and is under review by the supermarket giant.

Woolworths came to the rescue of SPC two years ago with a five-year deal to buy its private label tinned fruit from the Shepparton processor but it's understood concerns over quality, sizing and supply have emerged just two years into the agreement.

The supermarket's decision to buy its private-label tinned tomatoes from a new Australian supplier may blunt SPC's ability to mount a public campaign urging shoppers to invest in its locally grown product and locally produced lines to support its business.

Retail insiders suggest negotiations over pricing were the trigger for the flare-up in the relations between SPC and Woolworths but it's not clear whether it was the supermarket giant's push for sharper pricing or SPC's request for price increases.

Woolworths head of buying Stephen Donohue said the chain had struck a deal to buy tomatoes from a local provider, who sourced fruit from the Murray Valley region in Victoria.

Despite this, Mr Donohue said Woolworths remained committed to the "spirit" of its five-year partnership with SPC Ardmona for Woolworths-brand Australian canned fruit.

"We expect that with the support of CCA's SPC Ardmona that the current discussions will conclude positively this week.

"We however continue to support SPC Ardmona by offering customers the Ardmona brand of tinned tomatoes throughout our stores."

Woolworths' decision to contract a new canned tomato supplier will reduce the overall size of its agreement with SPC, which may have repercussions on the SPC workforce as well as the Victorian government's $22 million bailout of the cannery.

SPC also supplies Coles with a number of canned fruit lines, including all its private-label canned peaches, pears and apricots.

SPC was not making any comment yesterday with spokeswoman Yvonne McKay saying only that it wouldn't discuss the details of its negotiations.

Tinned fruit as a supermarket category has shrunk significantly in recent years and collapsed from the heydays of the 1970s, when tinned peaches and ice-cream was a dessert staple in many Australian households.

The Victorian Farmers Federation and the state government have urged Woolworths to honour its agreement with SPC, amid claims any change could jeopardise the the future of the Goulburn Valley fruit industry.

"Woolworths made a commitment to the farmers and processors of our Goulburn valley, and we want to see them honour that," Regional Development Minister Jaala Pulford said.

It is understood that Ms Pulford has personally intervened and is attempting to broker a deal between Woolworths and SPC.

Damian Drum, federal Nationals MP for the seat of Murray, said it would be extremely disappointing if Woolworths was considering "reneging" on its deal.

"Woolworths entered into a high level of public support when they made those statements two years ago about supporting the fruit industry in the Goulburn Valley," he said.

"They didn't talk about a verbal agreement, they talked about a deal, a five-year deal, and they can't change the meaning of those statements when the market tightens up a little bit."

However there are also questions over SPC owner Coca-Cola Amatil and its strategy for the business after it announced plans to review the loss-making operation next year.

Citi head of research Craig Woolford said Coca-Cola was taking a very rational approach in relation to SPC and it wanted it to succeed.

"They do own good brands but they need to be cost competitive and that has been very difficult in recent years," Mr Woolford said.

"It's looking to review this business next year, it's a loss-making business and they need to develop new products, which I know they are looking at to try and appeal to shoppers in different ways."

This story was first published on The Sydney Morning Herald.