One week before it slashed its retail milk prices, Asda reduced the premium paid to its dairy farmers by 0.25 pence per litre (ppl) to 1ppl, applicable after 1 October.
In line with Robert Wiseman and Dairy Crest, Asda farmers received a 1.85ppl base price increase from Arla, Asda's milk processor, from the same date, subject to meeting specified composition requirements. However, taking into account the reduction in premium imposed by Asda, the net increase in the total milk price Asda farmers receive equates to 1.60ppl. Estimates suggest Asda is in line to save approximately £1.6m per annum as a result of its recent reduction in the premium.
The revelation comes after Asda reduced the price of four pints of milk from £1.25 to £1.18 on 7 October, only a short while after Tesco launched its Big Price Drop campaign.
In July last year, when Asda reduced the price of four pints of standard semi, skimmed and whole milk by 28p to £1.25, the retailer stated in its accompanying press release: "We're lowering the price of milk, but we are not doing that at the expense of our dairy farmers, far from it."
NFU dairy board chairman Mansel Raymond said he did not know why Asda had cut the premium, but described himself as "disappointed" that Asda had "taken part of the premium away from its farmers while we're looking to build up value".
Another source claimed Asda implemented the price cut simply "because it could". The retailer "tended to be on the front line with the gun," he added.
On 1 October, nine days after launching its Big Price Drop campaign, Tesco increased the amount paid to members of its Sustainable Dairy Group by 0.43ppl. At the time, Tesco boasted in its press release: "Confirmation of the new higher price Tesco is paying its dairy farmers follows the retailer's Big Price Drop announcement."
Asda did not respond to specific questions from The Grocer concerning either the reasons behind the reduction or its timing. However, the retailer made a statement about the effects of the change: "The dairy farmers we source from are getting paid more money for their milk this week and our customers are paying less."
The Co-operative Group which established a milk supply group in August pays its dairy farmers a premium of 1.35ppl on top of the processor price. Sainsbury's pays a 2.1ppl premium. Morrisons also pays a 1ppl premium, which is distributed to its non-aligned supplying dairy farmers.