The supermarket confirmed this week it was paying farmers 27.37ppl from October 1, marginally down on April's 28.43ppl to reflect a slight decrease in the cost of feeds, fuel and interest charges. The figure was calculated by consultants Promar using a formula that tracks the cost of farm inputs to produce a sustainable price.
There had been fears in farming circles that Tesco would follow the lead of a number of processors, who cut prices more dramatically earlier this year.
The new price means Tesco is paying significantly more for its milk than its rivals, with Sainsbury's paying 25.92ppl, Asda 25ppl, Morrisons 24.56ppl and The Co-operative Group 24.24ppl.
Tesco has frequently claimed it was the only supermarket paying a price that allowed farmers to re-invest for the future. The minimum cost of production, including unpaid family labour, is 26.87ppl, according to Promar. Those Tesco farmers who have chosen not to sign up to the Promar system will get the basic 26.87ppl price. "This new price shows our continued commitment to the long-term sustainability of the Tesco Sustainable Dairy Group farmers," said corporate affairs director Lucy Neville-Rolfe.
Tesco's approach was a leading example of a retailer working in partnership with processors and farmers, added Dairy UK director general Jim Begg.
"We are operating in a volatile market full of uncertainty for some dairy farmers, but in the long run, retailers and processors need profitable dairy farmers."
This week's announcement would give farmers the confidence to invest for the future, as well as improve on-farm efficiency and increase profits, said Arla farming committee chairman Will Hosford. "A milk price has been agreed that truly reflects cost of production giving TSDG members a fair and sustainable milk price."