Tesco has introduced a cost of production model for farmers supplying milk to its own-label cheese manufacturers South Caernarfon Creameries and First Milk.

The retailer will now pay suppliers 29.93 pence per litre for milk used to make Tesco Standard Mild & Medium cheddar, Tesco Value and Standard Red Leicester and Double Gloucester cheese as part of a six-month trial which started on 31 August and will run until 28 February 2016. 

In a blog post published today (2 September), Tesco’s commercial director for fresh food and commodities Matt Simister, said the retailer had extended the cost of production model it employs within the Tesco Sustainable Dairy Group (TSDG) in order to reassure customers “all our producers have benefited from a fair price for their milk”.

Adams Foods currently packs and distributes South Caernarfon Creameries and First Milk cheese for Tesco. Under the new arrangement, Tesco will pay Adams Foods the increased price, which will then be passed on to the two processors and their farmers.

“Through the work we have done in the TSDG, we understand how difficult the current market conditions are for farmers, and as we head into the winter period, we have decided to extend its pioneering ways of working to other farmers who supply milk for cheese on a number of our most popular lines,” he added.

The TSDG already pays farmers above the cost of production for milk to manufacture own-label mature and extra mature Cheddar, and had done for more than three years, added a spokeswoman.  

As previously reported, Tesco also said all of its own-label yoghurts would be made from British milk from March 2016. This would be “helping to increase the demand for British milk for farms across the UK,” Simister said.

A significant move

Tesco’s decision to extend its sustainable pricing model to its entire British cheese base was described as a “significant move” by the NFU and Farmers for Action (FFA).

“We are pleased that Tesco has recognised the challenging time the dairy industry is currently facing,” said NFU dairy board vice chairman Michael Oakes. “This is especially welcome as we are heading towards the winter as farmers face significantly higher costs of production while cows are housed.”

FFA chairman David Handley added Tesco had “listened to our very real concerns” and was offering “some kind of security for our struggling dairy industry”.