Tesco has created a new aligned group of dairy farmers that will receive a guaranteed above-market price for milk used to produce Tesco own-label British cheese.
The retailer has pledged to invest £6m during the next two years in the Tesco Cheese Group, which will launch on 17 April.
Tesco declined to disclose what farmgate price the new group would be paid at launch, but said pricing would be reviewed regularly throughout the year. It will also award farmers an additional 2 pence per litre bonus in recognition of the fact they must adhere to the Red Tractor assurance scheme, as well as additional Tesco welfare standards to improve cow health and welfare.
The average market price for milk used to make cheese is currently about 20ppl, according to industry sources.
Tesco said the group aimed to build on the success of the Tesco Sustainable Dairy Group in supporting British farmers, and more recently its winter supplement payment for First Milk farmers supplying milk for its own-label Cheddar products through the dairy co-op’s Haverfordwest creamery.
The group will offer a guaranteed price to up to 200 dairy farmers who aren’t already members of the TSDG but produce milk for its British cheese range through the First Milk creamery in West Wales, and its other Cheddar supplier Parkham Farms. Both have long-term supply relationships with Irish dairy co-op Ornua.
It will cover Tesco’s mild, medium, mature and extra mature Cheddar range, in addition to its Red Leicester and Double Gloucester.
Tesco said the group would “deliver a fair and consistent pricing model for UK farmers, and will provide them with the security and ability to plan ahead for the future”, while meeting high animal welfare and food quality standards.
“We have created this new cheese group to help us to meet customers’ needs whilst also establishing a long-term sustainable livelihood for our farmers,” said Tesco commercial director Matt Simister. “By providing them with the assurance of our commitment, we are hoping to give our producers the confidence to invest so that they can deliver what customers are looking for in an efficient way.”
“The new pricing model will ensure that we and our farmers are paid a premium price above that of the market, reflecting the quality of our cheese and the milk that goes into it,” added Parkham Farms owner Peter Willes, and would “provide a long-term and sustainable structure to help build our relationship with Tesco even further”.
The new agreement was about “establishing a long-term, progressive and sustainable supply chain partnership”, said First Milk CEO Mike Gallacher.
“While the current context is hugely challenging in dairy, we need to continue to keep focused on the long term, ensuring we put in place business models that can deliver for our customers, consumers and producers,” he added.
At first glance the Tesco Cheese Group was a “positive move” that supported British farmers, said NFU chief dairy adviser Siân Davies.
But she cautioned it also represented a large reduction in the financial support offered by Tesco compared with its winter supplement payments.
“That said, even with this reduction, Tesco is doing far more on cheese sourcing than a number of other retailers, and it is being transparent and open with its pricing mechanisms,” she added. “We will continue our call for retailers to look at more sustainable ways of sourcing their own label cheese and other products in the dairy aisles.”