Farmers in Tesco’s supplier group will see prices changed every three months following a review of the system.
The Tesco Sustainable Dairy Group (TSDG) has undergone its first review since its introduction in 2007. The group is set to be expanded and prices will be set according to a regular three-month review of production costs. This will be operated using independent consultancy Promar.
Matt Simister, Tesco’s commercial director for fresh food, said: "It is crucial to us and our farmers we continue to evolve the most sustainable, progressive and leading dairy group in the UK.
"By maintaining our above the cost of production model and focusing on delivering quality, value, innovation and service for our customers, we are confident it can continue to be a standard bearer for the industry."
Farmers on the scheme must adhere to additional welfare levels as well as Red Tractor standards. The lowest performing farmers will see help from Tesco to improve their businesses through the Tesco Dairy Centre of Excellence.
The centre aims to encourage innovation and improve knowledge.
NFU chief dairy adviser Sian Davies said: “This progressive and balanced review has given Tesco the opportunity to reflect on all aspects of their TSDG model.
"We believe that changes were necessary for the long term sustainability of the group and to deliver value to both Tesco and its customers."
Tesco pays 30.58ppl for Tesco own-brand fresh and filtered milk, cream products and mild and mature cheddar. Until February 28, Tesco mild and medium cheddar, Red Leicester and Double Gloucester will receive 29.58ppl, which will be reflected in the cheese price paid to the processor.