The retailer said it would offer direct contracts to named farmers, raising the price farmers receive for their milk from an average of 17p a litre to 22p a litre. The price shoppers pay will remain the same.
It will also launch a local choice milk which will be sourced from local farms and sold at Tesco stores in or close to their county.
“I believe that this new package of measures offer British farmers a great opportunity to work with us, get closer to consumers and grow their business,” said Tesco commercial and trading director Richard Brasher.
The move was welcomed by the industry. “The announcement from Tesco is good news for their farmers and we support initiatives which extend choice for consumers and encourage them to enjoy the high quality products our industry provides,” said Dairy UK chairman David Curry.
Peter Kendall, president of the National Farmers' Union, described the move as “the most significant and encouraging development in the dairy industry for a very long time.”