Source: Alamy 

The switch comes amid a raft of milk price cuts across the mults

Sainsbury’s will use Müller as the sole supplier of its own-label milk from next February, following the end of its long-standing supply deal with Arla.

A Sainsbury’s spokeswoman this week said the switch – the first major change in its milk supply arrangements since before the covid pandemic – had followed a supplier review.

Arla first started supplying milk to the retailer in 2010, and is understood to have made up around a quarter of Sainsbury’s total own label milk supply, with Müller meeting the remainder of its own-label milk requirements.

“We have recently updated how we work with our milk suppliers so that together we can improve how we manage supply and continue to compensate our farmers fairly and competitively,” added the Sainsbury’s spokeswoman. 

Arla said both it and Sainsbury’s “remain committed to their long-standing relationship and the retailer remains a key strategic partner across Arla’s recognised brands, which are seeing significant growth within Sainsbury’s stores”.

Growing Arla’s branded business across dairy categories was “a key part of our long-term strategy and we are pleased that they will continue to support us and our farmer owners as we continue to provide nutritious & tasty dairy to UK shoppers”, a spokeswoman for the dairy Co-op added.

The move comes as Morrisons and Ocado this week became the latest retailers to reduce the price of key milk lines.

Morrisons cut the price of its one-pint, two-pint and six-pint SKUs by 5p, to 90p, £1.25 and £2.30 respectively. A four-pinter in the retailer is now 10p cheaper at £1.55, while four pints of its For Farmers Milk is down 10p to £1.75.

Ocado similarly cut the price of a four-pinter by 10p to £1.55, with a two-pinter down 5p to £1.25. The online retailer said “we know every penny counts and – as milk is a staple on many family shopping lists – that these savings will help make food budgets stretch a little further”. 

Aldi and Lidl join Sainsbury’s and Tesco in cutting milk prices

The price reductions follow a raft of similar cuts by the likes of Asda, Tesco, Sainsbury’s and the discounters last week, as Tesco UK CEO Jason Tarry pointed to “some cost price deflation across the market in recent times”, which gave the retailer the “opportunity to pass that reduction on to customers”.

But despite media headlines mentioning milk “price wars”, average prices are still significantly higher than they were a year ago.

A price of £1.25 for two pints is still 40.4% higher than the start of 2022, when the line cost 89p in most major supermarkets, according to analysis of Assosia data.

A two-pinter at this price is also 10p more expensive than the £1.15 shoppers were paying for a four-pinter at the turn of last year.

The most up to date average farmgate price across all major milk processors in the UK is now in the region of 40.1p per litre, according to analysis by Kite Consulting. This represents a reduction of 22% on the record prices seen as recently as December.

However, Kite stressed these falls reflected global dairy commodity fluctuations, with production slightly up this year, while the cost of production for UK producers remained stubbornly high, despite indications that input costs were now starting to ease off.

Kite is forecasting an average cost of production of 48.4p per litre for 2023, up 29% year on year, falling to around 47.61 in 2024 – figures that remain significantly higher than average farmgate prices.

It is forecasting a break-even price – minus stock sales, other dairy income, valuation change and subsidy incomes – of around 42ppl-43ppl for 2023. And as a result, any further farmgate price falls could still impact on supply as the year progressed, the agricultural consultancy warned.