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Tesco is raising the price it pays to farmers for their milk

Tesco has slashed the price of milk in its stores, but the price it pays dairy farmers is moving up.

The retailer announced today farmers in its dedicated milk supply group – the Tesco Sustainable Dairy Group (TSDG) – would receive a new price of at least 34.2 pence per litre for their milk, up from 33.79ppl at the moment.

This represents an increase of at least 0.4ppl, depending on which processor – Arla or Müller Wiseman – the farmers supply Tesco through. TSDG farmers receive a Tesco premium on top of the normal milk price set by their processor; those supplying through Arla will therefore receive 34.2ppl, while those supplying through Müller will receive 34.3ppl.

The premium that TSDG farmers receive is linked to a tracker run for Tesco by consultancy Promar, which takes into account the cost of production. With grain prices having fallen recently, key production costs for dairy farmers have actually come down, but a spokesman for Tesco said its price was moving up regardless, as Arla and Müller Wiseman had recently put up their prices and Tesco was contractually committed to match them.

“It’s written into TSDG farmers’ contracts that we will match Arla and Wiseman prices, so they don’t miss out,” a spokesman said.

Commercial director John Scouler said the price increase reflected Tesco’s commitment to pay farmers a fair price for their milk. “The TSDG has now been running for seven years and we are proud to continue to lead the way in offering dairy farmers a fair price and supporting British agriculture.”

Tesco recently slashed the retail price of its own-label milk from £1.39 to £1 for four pints, sparking a new supermarket price war. It stressed at the time its retail prices were not linked to farmgate prices and farmers would not be made to pay for price cuts in store.