Tesco is increasing the price it pays British dairy farmers for their milk from the start of next month.
Following an independent review, the UK’s biggest supermarket chain said it was increasing its farmgate milk price to members of the group who submit their production data via the industry cost tracker Promar by 1.02ppl.
The revised price exceeds the marketplace’s most recently calculated average price, which was 32ppl in August according to analysis by industry body DairyCo.
In a statement, Tesco said: “The result of the Promar independent tracker has shown an increase of 0.54ppl in the cost of production, mainly as a result of increased feed costs.
“Since April, due to the poor spring weather milk volume output has not recovered as quickly as expected.
“As a result, Tesco has agreed with the TSDG farmer committee to increase the price by a further 0.48ppl from 1 November 2013. This results in a total increase of 1.02ppl.”
David Shaw, dairy chairman for the National Farmers’ Union in the North East, welcomed the price rise but insisted that more needs to be done to help farmers replace out-dated milking parlours and buildings. If farmers had the funds to invest in their business then production levels could be stepped up, he said.
“Any price increase is really welcome and farmers definitely need it,” Mr Shaw said.
“We were hoping for it being a better harvest this year so the price of feed would come down but it has been slow to fall.
“Dairy farmers probably need 3p or 4p more per litre to invest in their infrastructure. In order to get that investment we need a level of profitability.”
DairyCo reports that milk prices for August were 20 per cent higher year-on-year and Mr Shaw, who farms at Elvington near York, said the improved marketplace means there is room for “cautious optimism” in the industry.
“I want people to be optimistic in the dairy industry for the future because we have a bigger market, there are more people in the UK and we only produce 80 per cent of milk consumed in this country, so there are opportunities,” he said.
Commenting on Tesco’s forthcoming price rise, John Scouler, the retailer’s commercial director, said: “It reflects our commitment to recognise the true cost of the production of milk, and pay a price above that cost. The TSDG has now been running for six years and we are proud to continue to lead the way in offering dairy farmers a fair price and support British agriculture.”
Chairman of the TSDG farmer committee, Will Hosford, a dairy farmer in Dorset who supplies milk to Tesco, said the price rise was timely as winter looms.
“Despite the good weather we’ve experienced this summer, the dairy industry continues to feel the effects of the extreme weather at the start of the year and the market remains volatile,” he said.
“The security and confidence that Tesco provides farmers through the TSDG is more important than ever as we look to prepare for the upcoming winter.”