Tesco raises price structure for milk-suppliers
Tesco will pay an extra 1.28p per litre.
By New Statesman Published 17 September 2010
Tesco will be paying more to its milk suppliers starting October. The new price at 28.18p per litre will be 1.28p higher than its earlier price.
The move comes after an independent review of milk farming found that the increase in cattle feed cost made it necessary to raise the price for suppliers.
The new pricing will be applicable only to member suppliers to the retail chain's Tesco Sustainable Dairy Group. The company arrived at the sum after deriving the mean value from milk prices of its competitors - Sainsbury's, Asda and Morrisons.
"It is extremely encouraging to see that Tesco is committed to its pricing formula," said chairman of the National Farmers Union (NFU) board Mansel Raymond.
Milk is often a contentious issue with supermarkets as farmers' organizations claim to make a loss on every pint sold because of aggressive price wars amongst retailers.
Shares of dairy group Robert Wiseman went down by a third on Thursday after it stated that the intense competition would impact its operating profits.
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1 comment
Will the 1.228ppl increase from 1st October announced by Tesco be strongly challenged by the NFU or will Mansell Raymond continue to hail Tesco as heroes again - New Statesman 17th September - because they give a handful of farmers a contract, which they do purely as a very clever and successful PR exercise, which is also very cost effective for them.
The imbalance of power in the Milk chain is blatantly apparent now this new milk price has been set by Tesco, which, unless something is done urgently will stand for the next 6 months and actually affects all other British Dairy Farmers whether in the TSDG or not.
Because of the imbalance of power the milk price for the whole industry is now heavily reliant on these 6 monthly price-setting reviews by Tesco, which is wrong.
It is not acceptable that the entire industry relies so heavily on Tesco/ Promar costings as these are calculated from a very small percentage of farms and are not published, as they are a private arrangement made by Tesco and those who accept their contract.
However as the largest retailer by far Tesco is the major force behind driving the milk price further and further down as they have the ability to undercut other buyers and procure their milk through the larger processors such as Arla who also have the ability to operate on a higher scale of economy and undercut others.
The future of the vulnerable supply of British milk is at present being put at serious risk by the withholding of huge amounts of money from Dairy farmers over a long term by large purely profit driven companies who have the ability to exert so much power in the milk supply chain.
With such a powerful hold over the British Milk Industry Tesco have a moral responsibility to ensure that all other efficient dairy farmers have the chance of receiving a sustainable price and Tesco should set their own prices to reflect this.
There is a grey area over exactly what percentage of Milk sold by Tesco is actually paid at the so called Premium price, and what price Tesco pays for all other milk they sell.
These few so called Premium Price contracts are a smokescreen for the reality of the situation faced by the majority of farmers who are either not with TSDG or paid at a lower rate as they are not prepared to hand over their financial details to their buyer.
If the amount paid for milk by TSDG covers the cost of production plus enough for essential investment this should not be advertised as a Premium price.
The British Retail Consortium has even admitted that Supermarkets are in control of prices and says they were paying "more than the going rate".
As the going rate is less than the cost of production it is dishonest to claim this is a Premium Price unless it also includes a bonus over and above the cost of production plus a figure to cover essential investment.
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