September 20, 2010

Tesco lifts farmgate milk price

Supermarket giant Tesco has recently increased the price it will pay its milk suppliers over the next six months in response to cost pressures facing farmers.

Tesco Sustainable Dairy Group (TSDG) members on the Cost Tracker contract, which is based on dairy farm production costs provided by consultant Promar, will receive 28.18p (US$0.44)/litre for the six months from October 1, an increase of 1.28p (US$0.02)/litre.

TSDG members outside the Cost Tracker (around 20% of the total milk supplied) will receive 27.68p (US$0.43)/litre, up from 26.4p (US$0.41)/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 from 13.64p (US$0.21)/litre to 15.09p (US$0.24)/litre since its March price review. The Cost Tracker contract also includes a provision for depreciation and other overheads, all of which were up.

"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."

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.

"We're looking for large farmgate price increases from all milk buyers by October 1," he said.

Butter and cream prices have both moved up recently and the cheese market is expected to begin to firm as well, Raymond said, adding that at the moment, the UK is lagging behind others in Europe and needs to catch up.