Tesco will launch a dedicated group of 200 farmers supplying milk for cheese, along the lines of its premium liquid pool.
The Tesco Cheese Group will launch on 17 April and pay farmers a market rate plus a 2p/litre bonus.
Producers will not receive the cost-of-production price paid to the existing Tesco group of 600 farmers, who will get 28.69p/litre from May. But they will have to meet a similar set of supermarket assurance standards.
The decision formalises the existing cheese schemes run by Britain’s biggest retailer.
Over the winter, Tesco paid First Milk farmers supplying the Haverfordwest Creamery a winter supplement, which was due to run out in April. This has been worth between 1-3p/litre each month.
Up to 30 farmers supplying Parkham Farms have been part of the existing Tesco Sustainable Dairy Group, producing milk for mature and extra mature cheddar.
The new group will cover all Tesco’s own-label cheddars, along with Red Leicester and Double Gloucester.
First Milk chief executive Mike Gallacher called the agreement a “progressive and sustainable” partnership.
“While the current context is hugely challenging in dairy, we need to continue to keep focused on the long term,” he said.
Tesco has said it will spend £6m on the cheese scheme over two years.
The supermarket’s current dairy group, which started in 2007, has been expensive during the current dairy crisis, because of the promise to pay a high price even when markets collapsed.
The contract terms have been tightened to encourage the most efficient producers to expand, and worst performers to improve or lose their deals.
Tesco commercial director for fresh food Matt Simister said the new group balanced fair prices for farmers with high standards for shoppers.
“We are confident that this new initiative will enable producers for our own-label cheese to also plan and budget for the future, and focus on the things that matter most – meeting high animal welfare and food quality standards for customers,” he said.
Tesco still has to work with suppliers Parkham and First Milk to work out which farmers will be part of the group.
The winter supplement was spread across the more than 200 First Milk farmers supplying the co-op’s west Wales factory. Whether a separate milk pool will need to be set up is undecided.