Tesco increased the retail price of milk this week in a move that will hopefully inject some stability into a dairy industry still reeling from Arla Food’s recent price cut.

A four-pint bottle of milk will now cost £1.11, up from £1.

A spokeswoman for the retailer said:

“We believe this better reflects the value of the product and should create a more stable pricing environment for the industry.”

Somerfield has also put up the price of milk and others are expected to follow Tesco’s lead.

Chris Brown, Asda’s agricultural manager, said his company was considering its position, but a Sainsbury’s spokeswoman said the store was not considering changes at the moment.

Although a retail price increase will not necessarily lead to better farm-gate prices, farmers’ organisations welcomed the Tesco announcement, which they said would go some way to reversing the damage they reckoned had been done when Asda slashed the shelf price of its milk by 16p for four pints in March.

All the other major retailers quickly followed suit knocking an estimated £180m off the value of fresh milk.

This was partly blamed by Arla Foods for a drop in full-year profits.

Arla Foods subsequently cut its farm-gate milk by well over 1p/litre for many of its suppliers.

Although the milk processor said this was not a direct result of the slide in profits, many farmers and industry commentators remained unconvinced.

Commenting on Tesco’s price rise, Anna Davies at NFU Scotland said:

“The price cut by Asda a few months ago proved that there is more than enough profit within the supply chain, as do the profit statements of all the large retailers.

Tesco must ensure that a share of today’s price increase returns to farmers.”

David Handley, leader of Farmers for Action, said Tesco’s decision was great news and all of the group’s attentions would now be focused on Asda.

“We’ve got a few things up our sleeves for next week.”

NFU dairy board chairman Gwyn Jones said:

“I welcome what Tesco has done to correct the damage that Asda did with its four-pint pledge.

It’s ironic that Arla is supposed to be in partnership with Asda, which has been doing them very real damage.

“There is also plenty of evidence to suggest that the decrease in retail prices is putting massive pressure on the middle ground.

We’ll be holding them to account for the damage they’ve done to the industry.”

At Asda, however, Dr Brown said he thought the criticism was unfair.

He said the price cut was generating extra sales, which would enable a greater investment in farm-gate prices.

“Our job is to look after our farmers.”

andrew.shirley@rbi.co.uk