Supermarket Tesco is to increase the price it pays farmers for milk by 0.5p/litre, say industry sources.

Nobody from the store was prepared to comment as Farmers Weekly went to press on Wednesday (26 March), but it is believed that the 800 farmers who supply it through processors Arla Foods UK and Robert Wiseman Dairies will receive 28p/litre from next month.

The two processors were also hoping for an increase for themselves from Tesco, but it is not known if they have received any extra cash from the negotiations.

What Tesco decides to pay its farmers at its twice-yearly price reviews is widely considered to be a key factor in determining the direction many other milk buyers will take, so the outcome of the latest round was keenly awaited.

Acknowledgement

The fact that such a large buyer has listened to the arguments put forward by farmers' representatives and acknowledged the rising cost of production is good news for the industry. Hopefully, it will set a benchmark for other milk supply contracts being negotiated soon.

But the increase still falls some way short of the 30p/litre that a recent report, commissioned by co-op First Milk and compiled by consultant Promar International, suggested was necessary for farmers to pay family labour and reinvest in their businesses.

Payment increase needed

Anna Davies, communications manager at NFU Scotland, said: "The report commissioned by First Milk and published at the start of March, clearly highlights the precarious condition of British dairy farming and the need for a higher farmgate price to compensate for enormous increases in the cost of production.

"Dairy farmers need to be paid a price of at least 29.64p/litre to be able to reinvest in their businesses and secure a viable future.

"We need to see Tesco set the example and ensure that their farmers get paid at least that amount. Otherwise, our dairy industry may not have a guaranteed future."