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Woolworths inks fruit deal with SPC Ardmona

In a major win for local fruit growers and processor SPC Ardmona, Woolworths (ASX:WOW) has decided to source all its private label canned fruit domestically.

Once the supermarket retailer has sold through its current range of imported stock, Woolies will source product grown by Australian farmers and processed fruit from Coca-Cola Amatil (ASX:CCL) subsidiary SPC Ardmona.

Farmers will be cheering the decision, but for some it has come too late. There are many stories this year of farmers being forced to pull out ancient fruit trees, to make way for other agricultural products, simply because they have no-one who would buy their fruit.

In June this year, The Weekly Times reported that 750,000 fruit trees in the Goulburn Valley were expected to be burnt before spring, after SPC Ardmona advised around 170 growers that SPC would no longer accept their fruit. That would see 10% of peach and pear trees made redundant across the state of Victoria.

SPC Ardmona managing director Peter Kelly has welcomed Woolies’ decision, telling the Australian Financial Review (AFR) that the decision would save around 50,000 fruit trees from being destroyed, protect the livelihoods of 118 growers and shore up the future of the company’s operations in the Goulburn Valley.

The AFR also reports that last month Woolworths inked a deal with SPC Ardmona to supply 13 different lines of fruit for the retailer’s private label brands. Just two days ago, the federal government announced that it would invest $25 million into SPC Ardmona, to enable the company to keep its Shepparton processing plant open until at least 2020.

The move by Woolworths to source its produce domestically could also force rival Coles – owned by Wesfarmers (ASX:WES) to follow suit.

Foolish takeaway

While the deal is unlikely to cost the supermarket retailers much in the long run, it’s exceptionally good news for fruit growers in Australia as well as SPC Ardmona, and could be good news for Coca-Cola Amatil and its shareholders.

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Motley Fool writer/analyst Mike King owns shares in Woolworths and Coca-Cola Amatil.

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