March 29, 2012

From April 1, Tesco aligned milk producers will see a GBP0.65 (US$1.03) per litre price cut due to a reduction in feed costs, predominantly wheat.

The new price comes as a result of Promar's cost tracker calculations and those Tesco producers who subscribe to cost tracker will be on GBP29.56 (US$47) per litre. Those who do not, get GBP0.5 (US$0.8) per litre less which puts them in the area of some processors' current non-aligned prices. The price trend taken into account is the fall from GBP210 (US$334) per tonne in February 2011, to GBP165 (US$262) per tonne last month. The new price also reflects an increase for fuel, farm labour costs and unpaid family labour, said Tesco.

Robert Wiseman Dairies and Arla process the Tesco milk with Wiseman producing just over half. The question now is which processors and retailers will follow suit and conclude that a price cut is warranted.

Some processors would inevitably argue that as far as their own margins are concerned, they are currently contending with reduced revenue from bulk cream, estimated to be the equivalent of GBP0.03 (US$0.05) per litre of milk.

The Tesco Sustainable Dairy Group is now in its fifth year and the retailer maintains it has invested GBP145 million (US$231 million) into the group over and above the average UK producer milk price.

Tesco Sustainable Dairy Group chairman Will Hosford said: "While a fall in milk price is never welcomed, the Tesco Sustainable Dairy Group continues to give producers supplying Tesco the confidence to make the necessary investment their businesses demands.

This has been a positive journey over the last five years for both farmers and Tesco, and I look forward to continuing this good partnership."