The dairy industry is holding its breath to see what happens following Tesco's decision to raise its retail milk prices this week.

Farming leaders are hoping Sainsbury's, Asda, Morrisons and Somerfield will follow suit, after Tesco confirmed it had added 2p to the shelf price of a two pint bottle of milk and 4p to the price of a four pint bottle. The move has taken prices to 66p and £1.15 respectively and values milk at 1.7ppl more than before.

"It's good news," said NFU dairy board chairman Gwyn Jones. "I'd like to see as much of the rise passed back to farmers as possible." Tesco's move would help safeguard its supplies of milk, he said. "It's a good start but the need for further rises is clear."

Tesco's main fresh milk supplier Robert Wiseman Dairies refused to confirm whether it was receiving more from Tesco for its milk. A spokesman said the company had put a strong case to the retailer arguing farmers needed more money to cover the rising cost of feed and fuel.

"The Wiseman milk partnership has acted professionally in putting the case for a price rise forward with independent analysis to support the claim," he said.

Wiseman would "be looking at its position in terms of the supply chain," he added when asked about price rises for farmers.

A source said Arla, Tesco's other big fresh milk supplier, had promised to return the full increase - expected to be about 1ppl - direct to its farmers as soon as it received the extra money. The remaining 0.7ppl would be shared by the dairy and Tesco.

The rise follows months of negotiation between retail buyers at all the multiples and dairy companies. The processors have argued farmers' costs have risen by as much as 2.4ppl. Farmers for Action boss David Handley has called off plans to lobby Tesco shoppers for support and launch a blockade of milk depots.

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