Tesco has responded to the ongoing slump in global dairy commodity markets by cutting the farmgate price paid to members of its aligned pool of dairy farmers by 1.39 pence per litre from 1 May.
Members of the 600-strong Tesco Sustainable Dairy Group will be paid 28.69ppl for the next three months, the retailer said. However, it stressed the price reflected the average cost of production of all members across the group and remained “market-leading”.
The price cut follows the introduction of new terms for TSDG members last November, which included a reduction in its guaranteed price period from six months to three months at a time, in addition to tighter conditions on areas such as animal welfare standards, milk quality and environmental standards.
As part of the new contractual arrangements, the top-performing 5% of producers will be rewarded with extra orders to the tune of 100,000 litres of milk each year, while the bottom-performing 5% will be given a notice period of six months to improve standards before being axed as suppliers.
“The TSDG continues to be the cornerstone of the way we partner with British agriculture,” said Tesco commercial director for fresh food Matt Simister. “For almost a decade we have worked with our dairy farmers to provide the best possible quality British milk, produced to the highest standards for our customers, whilst ensuring farmers receive a fair price.”
The price cut comes in the wake of similar moves by Arla and Müller last week, in the face of continuing market volatility due to oversupply of milk and ahead of the spring flush.