The NFU has fired a warning shot across the bows of Tesco pointing out that while it should be congratulated for introducing a dedicated supply group for liquid milk, there is still room for improvement.

Speaking at Tesco’s Wiseman producer conference, NFU director general, Richard Macdonald reinforced the NFU’s continued support for the Tesco Sustainable Dairy Group.

But he sent a clear message that there was still room for improvement in the relationship between the retailer and its suppliers.

Mr Macdonald also expressed concern over the company’s decision to introduce Fresh ’n’ Lo economy milk and he questioned its sourcing policy on cheese and other dairy products.

“The power that the multiples exert on the domestic market is a significant factor in determining the fortunes of farmers. They are the industry’s biggest and most powerful customers and the sheer volumes now involved in their contracts for milk, cheese and other dairy products means that processors are often in a weak position to resist downward price pressure. Over time this has contributed significantly to the fall in UK production and has shaken the confidence of our dairy farmers,” he said.

“Tesco’s decision to stock Fresh’n’ Lo highlights the challenge retailers face in meeting their responsibilities to customers without compromising their commitments to farmers. I understand that Tesco wants to provide value to their customers in a testing economic climate and will be concerned at losing market share to the discounters.

“However, I am concerned by the strategy and by the claim that this move will not be felt by the TSDG. While for now the core TSDG farmers are protected by their contract, the impact of this move on farmers’ confidence, who are still adjusting to being in a relationship with a retailer, cannot be underestimated.”
 
Mr McDonald said the NFU was committed to the concept of dedicated supply chains.

“We still believe that Tesco has gone further than any other major retailer to put in place mechanisms that allow prices to reflect production costs and to guarantee them for 6 months at a time. However, this does not mean to say there isn’t room for improvement.”
 
“At what is still an early stage in a new relationship, getting communications right is vital. There are still undercurrents of negativity and distrust that persist among dairy farmers, understandably after 10 difficult years of a badly functioning supply chain.

“Secondly, while we have seen great progress for liquid milk I want to see Tesco extended this responsibility into cheese and other dairy products. This includes sourcing more produce, especially own label cheese, from Britain. Thirdly, it is time for the TSDG to better organise itself with a proper democratic structure and representation to strengthen communications and negotiations.”