Article taken from Supply Management website. To view the article, click here.
A new price of 28.18p per litre will come into effect from 1 October - an increase of 1.28p per litre for the next six months.
It will only be paid to suppliers who are members of the Tesco Sustainable Dairy Group - an arm set up more than three years ago to ensure dairy farmers are paid above the cost of production.
The new payment follows an independent review of Tesco farmer production costs by research consultancy Promar, which found a rise was necessary because of an increase in the cost of cattle feed.
According to Tesco, the new price is significantly higher than the average price of all other major supermarkets which is 25.77 per litre.
Lucy Neville-Rolfe, Tesco board director said: "This new price remains considerably above the current market value and reflects the transparent way we work with the dairy industry. The Tesco Sustainable Dairy Group also makes additional provisions for making a profit, including capital investment and unpaid family labour. This is essential for the long-term future of the British dairy industry."
Last week, SM reported how National Farmers Union president Peter Kendall had called on retailers to "stop finding excuses" and work with dairy farmers to reach fair price agreements on the supply of milk.
Mansel Raymond, NFU Dairy Board chairman described today's announcement as "extremely encouraging". He said: "Tesco is benefiting from a committed, sustainable and secure supply of milk and dairy farmers are receiving greater stability, transparency and a market leading milk price, which allows them to invest in their businesses with confidence."