In July of this year, Tesco wrote to members of the Tesco Sustainable Dairy Group (TSDG), a group of 650 UK dairy farmers who supply milk directly to the retailer, to inform them it was launching a comprehensive review of how it buys milk direct from farmers.

In its letter to producers at the time, Tesco said major industry changes including the removal of EU milk quotas, world dairy market volatility and shrinking processor and producer numbers, had forced the company into a rethink of how it sources its milk supply.

The announcement of the review caused significant concern for members of the TSDG. The milk price paid to TSDG members is set for six months at a time and based on the group’s average cost of production.

Members have been receiving a milk price of 30.93p/litre for the last number of months, a significantly higher price than the average UK milk price of 24p/litre. This makes the direct supply scheme a very expensive way of sourcing milk for Tesco, particularly after the difficult couple of years the retailer has endured.

Increase in numbers

However, as Tesco reaches the conclusion of its review of its direct milk supply scheme, the retailer has announced it will seek to increase the number of farmers within the TSDG by more than 25%, or 150 farmers, by next spring.

“Over the summer we have been carrying out a collaborative review with members of the TSDG,” said Matt Simister, commercial director of fresh food and commodities for Tesco.

“As we near the end of the process, we are confident that we’ll be able to increase the number of direct relationships with our core TSDG pool farms by over a quarter by spring 2016,” he added.

Tesco also announced it has set a new milk price of 30.58p/litre for the next six-month period starting from November. With the retailer paying a premium milk price compared with many of the large UK dairy processors, it seems likely the extra spots opening up in the TSDG in the coming months will be in demand.