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The retailer will add 1p per litre to its milk price from next month in recognition of the difficult conditions facing dairy farmers

Sainsbury’s is to invest an extra £6m over the next year in its dairy supply chain through a new supplementary payment scheme for its dairy farmers.

From 1 October, the retailer will add an extra 1p per litre on to the independently calculated cost of production-based milk price in its Dairy Development Group.

With the typical volume of milk produced per year, per farm being roughly 2.7 million litres, Sainsbury’s said the payment, representing a total investment of £4.3m, meant the average farm could receive around £27,000 extra per year.

The retailer said a further 1ppl – costing it an additional £1.7m – had been earmarked for sustainability bonuses, adding to an earlier £2.6m bonus pot for farmers that fulfilled certain production criteria.

Farmers would be rewarded “for helping Sainsbury’s achieve its Plan for Better targets, specifically carbon reduction, through activities such as using sustainably sourced feed and using the correct amount of fertiliser, in the right way”, it added.

The move comes amid mounting concerns over falling farmgate milk prices, coupled with input costs that remain elevated, as the sector looks ahead to the winter period. NFU research published in August revealed almost a tenth of dairy farmers expected to leave the sector within the next two years due to financial concerns – up from 7% last year.

Acknowledging the increasing volatility of input costs and high level of capital investment required by dairy farmers, the extra cash for farmers followed a year-long review of its supply chain by Sainsbury’s, with the support of its SDDG farmer steering group.

“With new compliance legislation coming down the line for dairy farmers it’s expected many will need to make expensive updates to their farms, such as upgrading and improving feed stores and increasing the size of slurry storage,” Sainsbury’s said.

“This additional support aims to give farmers the confidence and desire to invest in these long-term changes so they can continue production for years to come.”

Dairy farming was “becoming increasingly challenging, and we recognise the responsibility we have as a retailer to support farmers and the need for continuous investment in this sector”, added Gavin Hodgson, director of agriculture, aquaculture and horticulture at Sainsbury’s.

“We are proud of our continued investment into the SDDG and are confident our £6m annual investment will help farmers to plan for a long-term and sustainable future. In turn, we hope this will also provide surety of supply for our customers as we continue to champion British milk now and for the future.”

The investment follows an earlier £8.9m booster payment to SDDG farmers in April 2022. Since introducing the cost of production model to the SDDG in 2012, the retailer said it had paid farmers, on average, 2.45ppl more compared with the rest of the market, delivering a £114m benefit.