Tesco to cut producers from its sustainable dairy group

Tesco has informed farmers in its Sustainable Dairy Group that it will be reducing the number of producers in the group later this year.

Affected dairy farms are due to be given 12-months notice from late September, before being placed on a direct Muller contract.

The changes are expected to affect a “small number” of dairy farmers, but no figures have been officially released.

See also: Dairy numbers fall as hundreds of producers quit the sector

A Tesco spokesperson said: “These changes will allow us to buy a higher proportion of each farm’s milk, while also encouraging farmers to continue to adopt sustainable farming practices. These improvements will result in a more sustainable dairy group for the future.”

It is understood that when the Tesco Sustainable Dairy Group (TSDG) was first created in 2007, there were more than 700 farms involved. There are now roughly 400 producers left in the group.

Increased yields

Overall milk volumes produced by the group have generally remained fairly consistent over time due to larger herd sizes and increased yields for each cow offsetting a decline in the number of farms.

TSDG producers are paid based on costs of production, with quarterly price adjustments independently set by Promar International to reflect changing feed, fuel, and fertiliser costs.

A Tesco spokesperson said: “Since the group started in 2007, we’ve paid more than £340m over market prices, including £40m in 2023 alone.

“As well as providing long-term support, our dairy farmers have also taken industry-leading steps to reduce the environmental impact of milk production and drive best practice in animal health and welfare.”

Contracts

Some Scottish dairy farmers are likely to lose contracts even after those who decide to voluntarily retire are taken into account, according to NFU Scotland.

Bruce Mackie, NFU Scotland milk committee chairman, said: “We will use our network of members to assess how the decision will affect them and how we can assist.

“Given the current fluctuation and uncertainty around milk prices and contracts, it is imperative that the affected farms are not disadvantaged during the 12 month notice period.

“They should be given the chance to move to a Muller direct contract as soon as possible, or given the option to terminate the contract and move to another milk processor, should another buyer be available.

“It would be grossly unfair to hold these producers at a lower price given the higher costs involved with adhering to the Tesco code of practice when they know the clock is ticking on their contract.”

Mr Mackie added: “We recognise that the decision has been justified on the back of declining liquid milk sales.

“However, the overall market for dairy products remains very robust and products like yoghurt, cheese, butter, and dairy desserts continue to enjoy strong demand.”