tesco milk aisle

The moves by the three retailers come as some farmers announced this month they would leave the milk pools of Sainsbury’s and Tesco over low returns

Tesco, Sainsbury’s and the Co-op have responded to mounting pressure from cash-strapped dairy farmers by introducing significant rises in the amount they pay their farmers for their milk.

Farmers supplying milk via aligned contracts to the Tesco Sustainable Dairy Group will see a 19.6% rise in their milk price from May, which will increase from 34.16p per litre to 40.84p per litre.

Tesco said this week that the 520 dairy farmers in the TSDG would also benefit from an “interim price rise in April” to “address the current unprecedented levels on-farm inflation”.

Sainsbury’s, meanwhile, told farmers in its Dairy Development Group late last week that it would increase its April farmgate payment by 4.72ppl to 38.62ppl (a rise of 13.9%), while a price update for May would be communicated in early April and would also include an indication of its price estimate for June and July.

The Co-op also confirmed to The Grocer this week that it had implemented a 12% month-on-month increase in the price paid for its liquid milk for April to 37.97ppl.

And in addition to “regular and ongoing dialogue” with its Dairy Group, it had brought its February payment to farmers forward by one month and had also increased the frequency of price reviews “to ensure it is acting at pace and more quickly than ever to support its farmers during this challenging time”. 

The moves follow mounting concerns that the trio’s aligned pools – designed to flatten out price volatility for farmers and secure milk payments above the cost of production – were becoming an anachronism, and lagging behind soaring average farmgate prices, whuich were now at record levels.

Arla boss calls for greater financial support for dairy farmers

Defra’s latest UK average farmgate milk price for February stood at an all-time high of 35.89ppl, up 1.2% on the previous month, fuelled by rising inflation of farm inputs.

This figure is expected to rise even further when AHDB publishes its latest pricing analysis in April, following farmgate rises to near the 40ppl mark by the likes of Arla, Freshways, Medina and Paynes Dairies, among others over the past fortnight. Müller also announced a further increase for May this week, by 3.5ppl for Müller Advantage farmers to 40ppl.

With spot prices even higher at near the 45ppl mark, and the actual break-even price already at 40ppl [Kite Consulting] and bound to keep rising, The Grocer reported at the start of March that 15% of Sainsbury’s milk pool and some supplying the TSDG had already decided to pull out of their aligned contracts due to the lower returns offered them, prompting a “recruitment war” for farmers.

It comes as Arla UK boss Ash Amirahmadi warned last week that the sector needed retailers to put “an arm around them” with greater financial support, or they may look to sell their products elsewhere.

Speaking to The Grocer as Arla unveiled its five-year growth strategy, Amirahmadi cited ONS data that showed inflation for consumer goods [CPI] had increased by 26% over the past 10 years. But during that same period, retail fresh milk prices had lagged significantly – falling on average by 7%, while average farmgate milk prices had largely remained flat – apart from the recent increases.

Dairy farmers drop out of mults as milk prices get less competitive

Tesco said its “industry-leading” price hike would provide a “much-needed boost to British dairy farmers”. 

“Our farmers work incredibly hard to provide quality, fresh food to our customers, and we recognise the critical role they are already playing in helping to transform the food industry, as we tackle issues such as climate change and food security,” said Tesco commercial director for fresh food Dominic Morrey.

Sainsbury’s – which launched a review of its aligned milk pool earlier this year – described its own price hike as a “meaningful increase”. 

the move had followed an update in the way it calculated its milk price “so that it is based on both current and forecast costs we believe our farmers will incur”, a spokeswoman confirmed.

Dairy sector analyst Ian Potter – who first revealed the Sainsbury’s increase in his newsletter last Friday – welcomed the price hikes.

Farmer cash flow was “under incredible pressure, and the days of farmers and processors beholding to retailers have evaporated”, he added. Without action to keep up with the cost of production, “one day soon someone is going to be short of milk or even worse have no milk”, he warned. 

Dairy faces ‘reset’ as rocketing input costs drive up prices