Tesco Announces Direct Deal For UK Dairy Farmers

Tesco today announced a range of measures to support UK dairy farmers and bring shoppers even more choice when it comes to buying milk.

3 April 2007

4 minute read

Europe

In the biggest change to benefit the dairy industry in decades Tesco, the largest single retailer of milk in the UK, said that it would offer direct contracts to named farmers, raising the price farmers receive to around 22 pence per litre – the best price currently being paid by any supermarket. However Tesco shoppers will pay no more for that milk than they do now.

Crucially the new contract prices will be reviewed every six months to make sure they reflect the farmers’ costs of production and will be determined using key variables such as feed, fertilizer, energy and labour.

Recognising that many smaller, often family run, farms can struggle to balance their costs against the market price, Tesco also today launched ‘localchoice’ milk, which will be sourced from local farms and sold at Tesco stores in or close to their county. It will sell for slightly more per litre than standard milk meaning these smaller producers can make returns more in line with the proportionately higher costs of their business.

Announcing the measures, Tesco Commercial and Trading Director, Richard Brasher said: “We know that some British milk producers - often through no fault of their own - have had a very difficult time for a number of years. We can all debate the causes - the abolition of guaranteed pricing, CAP reform and structural factors in the market - but the fact remains that the industry has found it very tough for a long time now.”

“Our customers tell us they are not comfortable with this, and they want us to help if we can. Dairy farmers also tell us that they would value a more direct relationship with Tesco.

“Unlike most other areas of our business the dairy industry is not structured in a way that encourages direct relationships between producers and retailers.

“We have always recognised our responsibilities and have been working to get closer to key stakeholders in the dairy supply chain for some time, to improve efficiencies, productivity, sustainability, quality of product and security of supply

“This work has enabled us to lay the foundations of a new milk direct sourcing model and we are pleased to announce this twenty five million pound investment in our UK Dairy Industry.

“I believe that this new package of measures offers British farmers a great opportunity to work with us, get closer to consumers and grow their business. It will also allow us to better understand the challenges they face as producers.

“I am particularly pleased that we have also found a way to help smaller family producers with our new ‘localchoice’ milk. This will offer those producers a return more in line with their unique costs and increases choice for our customers by enabling them to support the kind of farming they want to sustain into the future - through their own buying decisions.

”Many of our shoppers have told us they want us to make it easier for them to buy food that is genuinely local to their area - reducing environmental costs through transport and providing confidence that, if they buy a local product, they are helping their local economy and local suppliers, particularly small, independent, family farmers.”

The NFU has hailed Tesco’s announcement, with NFU President Peter Kendall describing it as “the most significant and encouraging development in the dairy industry for a very long time”.

Dairy farmer Tim Gue, who milks 300 cows in Steyning, West Sussex, also welcomed the announcement, saying, “This is wonderful news for Dairy Farmers. This initiative will mean that farmers are more closely connected with their customers and will receive a return that reflects the hard work and investment that goes into producing the daily pinta.”

As well as bringing a higher price per litre to its dedicated milk producers, today’s announcement also means that Tesco can enjoy closer relationships with those milk producers. Farmers will join producer clubs bringing them together with Tesco and dairy processors to share knowledge and understand customer trends. Where Tesco already enjoys direct relationships with suppliers in other areas of its business it is highly rated in surveys for fairness and the quality of those relationships.