Morrisons is set to start recruiting farmers for its first dedicated liquid milk pool, after signing a new contract with suppliers.
The retailer will continue to buy milk from Arla and Dairy Crest for the next three years, but the latter’s volume will shrink by a third.
As part of the deal, Morrisons will introduce a new contract that pays farmers a price linked to movements in dairy commodity values.
The supermarket has previously explained the farmgate price will be worked out every three months, based on a rolling average of indexed butter and milk powder prices.
This could give farmers the chance to hedge or protect themselves against volatile milk price changes, like the crash over the past year.
But the mechanism might only be open to farmers supplying Dairy Crest, which will now supply about a third of Morrisons’ milk, as Arla’s policy is that all co-op members should receive the same price.
Morrisons agriculture manager, Andrew Loftus, said the supermarket was adding a dairy scheme to match the work it does in other sectors, such as its commitment to British red meat.
“We will be first to land this type of contract in the UK,” Mr Loftus said.
Since 2013, Morrisons has been running a pilot cost-tracking contract with First Milk for mild cheddar, involving nine farmers.
The retailer’s new deal would make Asda the only big-four supermarket not running a dedicated milk supply scheme.
Tesco and Sainsbury’s pay their dedicated farmer groups a price covering average production costs, plus a margin for reinvestment.