Supermarket giant Tesco has this week responded to the cost pressures facing farmers and increased the price it will pay its milk suppliers over the next six months.


Tesco Sustainable Dairy Group members on the Cost Tracker contract, which is based on dairy farm production costs provided by consultant Promar, will receive 28.18p/litre for the six months from 1 October, an increase of 1.28p/litre. TSDG members outside the Cost Tracker (around 20% of the total milk supplied) will receive 27.68p/litre, up from 26.4p/litre between April and September.

The price increase was a result of a jump in variable costs this autumn, principally feed. Tesco said total variable costs had risen by almost 1.5p/litre since its March price review, from 13.64p/litre to 15.09p/litre. The Cost Tracker contract also includes a provision for depreciation and other overheads. Depreciation was up from 1.43p/litre to 1.52p/litre, reflecting increased investment, while overheads – including unpaid family labour – totalled 11.07p/litre.

“We remain committed to ensuring British dairy farmers receive a fair price for the milk they supply to Tesco that is above the cost of production,” Tesco board director, Lucy Neville-Rolfe said. “This new price remains considerably above the current market value and reflects the transparent way we work with the dairy industry.”

The move, which pushes Tesco towards the top of the milk price league table, was welcomed by farmer committee chairman Andy Bloor. “Despite us operating in a volatile market, this unique relationship gives us the confidence and stability to remain in the dairy industry.”

NFU dairy board chairman Mansel Raymond was encouraged that Tesco had remained committed to its pricing formula, despite the pressures faced by tighter consumer spending through the recession. He called on other milk buyers to follow the supermarket’s lead and introduce immediate price increases.

“Tesco and Promar have highlighted what it costs to produce milk and others need to take note of what’s being paid. We’re looking for large farmgate price increases from all milk buyers by 1 October.

“Butter and cream prices have both moved up recently and hopefully the cheese market is beginning to firm as well. At the moment the UK is lagging behind others in Europe and we need to catch up.”