Australian supermarket chain Coles has dumped New Zealand as a supplier for its house brand cheese.

New Zealand has provided about half the cheese used in the chain's generic brand, but Coles will now switch to southern New South Wales co-operative Bega Cheese as part of its "Australian first" policy. The five-year contract signed with Bega, displacing the more than 9000 tonnes at present crossing the Tasman, hands the co-operative 100 per cent of Coles' house brand business.

Bega Cheese will need to acquire an extra 70 million litres of milk, and up to 70 new suppliers, to supply the 19,000 tonnes a year required under the deal. The contract, representing about 10 per cent of Bega's business, will also mean the upgrading of its Coburg, Melbourne, plant, and provide a further 30 jobs.

Coles merchandise director John Durkan said the chain had sought a partnership that sourced all its house brand cheese from within Australia.

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Bega Cheese chief executive Aidan Coleman said that the contract would inject an extra A$30 million ($38.4 million) directly into the Australian dairy industry.

"This new contract with Coles means we will be sourcing additional milk from our 400 dairy farmers across New South Wales and Victoria," he said. "We'll also approach up to 70 farmers who don't currently supply Bega and invite them to become part of our milk network."

Production of Coles brand cheese will begin in February.

Bega was established in 1899 and has recently expanded ahead of its listing last month on the Australian Securities Exchange. Its 110 farmer shareholders hold about 85 per cent of the stock, with A$35 million raised in a public offering of 15 per cent of the company.

The co-operative reported an after-tax profit of A$21.6 million for the year to June.