A new milk promotion launched last week by supermarket Asda has received a mixed reaction from the dairy industry, despite featuring a price increase for farmers.

The surprise move caught even Arla Foods, which supplies almost all of Asda’s fresh milk, unawares.

The scheme doubled the 0.5p/litre premium that the 550 Asda suppliers in the Arla Foods Milk Partnership receive.

At the same time Asda said it would slash the shelf price of its milk.

The price of a four-pint bottle fell 16p to just £1.

Tesco and Sainsbury’s cut their prices by similar amounts.

The move is part of Asda’s new “four-pint pledge” campaign.

Agricultural strategy manager Chris Brown said:

“We’re open about the price we pay our farmers, while our competitors prefer to keep their prices under lock and key.

“We reckon our lower milk prices, together with the multi-million pound ad campaign we are launching, will dramatically increase the amount of milk we sell.

And every extra pint will directly benefit our farmers.”

Responding to the challenge, a Tesco spokeswoman said:

“To remain competitive we have reduced our milk prices in store; however we remain committed to British farmers.”

Tesco sold twice as much milk as Asda, she added.

“To set up dedicated farmers with segregated collection, processing and packing would create additional costs.

The farmers who supply our processors are paid prices at the top end of the farmgate milk price league.”

NFU dairy board chairman Gwyn Jones welcomed Asda’s raw milk price increase.

“This puts Asda, Waitrose and M&S way out in front and sets a benchmark for the industry.

We must work hard to ensure that other producers benefit in a similar way.”

But he added: “I am concerned by moves to reduce retail milk prices as this will devalue the product and potentially create further price pressure.”

Arthur Reeves, director of milk purchasing at Dairy Crest, echoed that statement.

Milk Development Council economist Ken Boyns was more relaxed.

“It’s not the greatest news, but over the past 15 years there has been no direct correlation between the retail price of milk and what farmers get paid.”

NFU Scotland vice-president Jim McLaren said he was nervous the move could spark a supermarket price war where farmers would be the losers.

“The fact that Asda can afford to wipe nearly 10p/litre from its margin demonstrates the remarkable amount of money being made by supermarkets on liquid milk.

“This demonstrates that there is enough money in the supply chain for everyone to make a living.”

David Handley of Farmers for Action reckoned Asda’s price cut would take about £180m out of the supply chain.

“I’m very angry.

We’ve spent the last six years trying to get the price of milk to where it ought to be and in one fell swoop it’s been wiped off the board.

This won’t just affect 550 dairy farmers, it impacts on 14,000.”

But a spokesman said Asda’s first responsibility was to its own suppliers.

“Maybe the others ought to be talking to the people they supply about a more transparent supply chain.”

andrew.shirley@rbi.co.uk