Tesco has announced that it is to raise the price it pays farmers in the Tesco Sustainable Dairy Group (TSDG) for milk.

The retailer said today (21 September) it will increase the price to 31.58 pence per litre from 1 October, following an independent review process.

Tesco claimed the new price was one of the highest prices paid by any retailer for milk.

“This increase in the price we pay our 700 dairy farmers means they will continue to benefit from Tesco’s pledge to recognise the true cost of production of milk, and always pay a price above that cost,” said Tesco commercial director Andrew Yaxley.

The TSDG was created four years ago by the UK’s largest food retailer to address what it described as “the huge uncertainty faced by dairy farmers caused by continuing volatility in the markets” and provide “much needed stability”.

Yaxley said the company was “proud to have led the way in guaranteeing farmers get a fair price of their milk”.

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The move was welcomed by Will Hosford, dairy farmer and the chairman of Tesco’s Farmer Committee. “This has been a very difficult wet summer on the farm with uncertain levels and quality of conserved forage on many dairy units, compounded by the huge rise in bought-in feed costs. Tesco continues to recognise the increased costs this will incur with the latest milk price ensuring farmers can plan this winters feed purchases and production with confidence.”

Tesco said that under the Tesco Fair Price Guarantee, it “always pays TSDG farmers a price that is above the cost of production, ensuring that their business turns a profit so they can plan and invest for the future”.

The scheme covers all Tesco own label fresh milk apart from organic. Tesco also pointed out that it is the only major supermarket to guarantee 100% segregation, with consumers assured that every litre of its own-brand milk has come from a TSDG farmer.

Tesco’s move follows the announcement yesterday by First Milk that it would be increasing its milk price and similar moves by a number of other processors this month, which have followed protests during the summer from dairy farmer suppliers.

Tesco said the price rise takes into account an increase in the cost of production of 2.02p per litre from 29.06p to 31.08p, primarily as a result of a significant increase in the cost of feed.