Shopper in Tesco© London News Pic/REX Shutterstock

A scorecard system to reward top performers with extra volume is to be introduced to Tesco’s cost-of-production milk contract.

Other changes include a move from the current six-monthly costs review to a three-monthly review and compulsory submission of cost-of-production information by each farmer-supplier.

The figures are currently supplied to consultant Promar on a voluntary basis, with those taking part in the costings exercise receiving a 0.5p/litre milk price supplement.

The new contract, to be introduced from 1 February next year, will see the cost of this taken on by Tesco and the 0.5p/litre supplement withdrawn.

The scorecard measures include quality, value, innovation and service, with suppliers being assessed annually on these. Scores will be heavily weighted towards animal health, welfare and carbon footprinting.

The current contract was a first when launched in 2007, being the only cost-of-production model covering a significant number of producers for a major retailer.

Tesco announced a comprehensive review of the way it buys milk direct from farmers in mid-July, saying major industry changes had forced a rethink. These included the removal of EU milk quotas, world market volatility, the growing importance of farmer-owned co-ops and shrinking producer and processor numbers.

The scorecard concept offers top 5% performers the chance to supply 100,000 litres more milk annually to the retailer, while the poorest performers would be put on notice. This is understood to involve a six-month notice period, during which help would be given to meet the standards.

The retailer also announced recently that it was seeking up to 150 new suppliers for the new contract, details of which were to be presented to current suppliers at a meeting on Thursday (5 November).

These farmers supply the supermarket through Muller Wiseman and Arla, with milk for its own-brand fresh and filtered milk products (excluding organic), cream products and mature and extra mature cheddar at a farmgate price of 30.588p/litre, including the 0.5p/litre Promar costings supplement.

New suppliers will have to apply through their processor and a reserve pool will be made for allocation to young farmers and new entrants.

Tesco Sustainable Dairy Group (TSDG) producer and committee chairman James Stephen said the TSDG provided members with security and peace of mind, which was often lacking in the increasingly volatile market.

Tesco’s review had been progressive and balanced, said NFU chief dairy adviser Sian Davies. “We believe changes were necessary for the long-term sustainability of the group and to deliver value to both Tesco and its customers.”

Tesco had consulted widely with TSDG members in recent months and had honoured its commitment to keep the independent cost tracker, she said.