Making the announcement three days after Farmers For Action (FFA) said the retailer was planning to shift 200 million litres from Arla to Muller, Tesco confirmed the move. Releasing a statement late on Friday, it did not disclose the exact litreage which would move across.
However, if the 200m litre figure suggested by FFA remains correct, it means Muller will have 700m litres of the 1bn litre Tesco Sustainable Dairy Group (TSDG) pool, with Arla having the remaining volume.
Tesco said the deal with Muller Milk and Ingredients was part of its ‘commitment to create long-term, sustainable partnerships across its supply base’.
Tesco commercial director for fresh food Matt Simister said: “Developing trusted, long-term partnerships with our suppliers is central to providing the best quality for our customers. Tesco has a proud history of supporting British dairy farmers and this agreement with Muller Milk & Ingredients will create the most sustainable, progressive and customer-focused partnership in the dairy industry.”
Müller Milk and Ingredients managing director Andrew McInnes added: “Our fresh milk and ingredients business has been a key supplier to Tesco since 1993 and we are delighted to build on this long term partnership.
“We aim to be the best milk and ingredients business in the UK and we share with Tesco a desire to place a strong emphasis on innovation, adding value, quality and close collaborative working relationships throughout our supply chain from farm to factory to store.”
Tesco will maintain its long-standing relationship with Arla after agreeing a new supply partnership with the milk producer and will work closely with producers aligned with the TSDG.
In a statement, Peter Giørtz-Carlsen, executive vice president, Arla Foods UK, said: “While Arla is disappointed with the loss, Tesco continues to be an important and strategic customer. We have successfully strengthened the Arla business in 2015 through significant own label and branded volume growth in all categories as well as cost improvements. We are prepared and fit to meet the challenging market conditions.”
The Tesco move, widely discussed earlier in the week and confirmed on Friday, led FFA leader David Handley to claim it would 'decimate' UK dairying.
His anger was prompted by the belief that, in his opinion, it would be non-aligned Muller producers who would foot the bill as the processor sought to process more milk at tighter margins while TSDG farmers, many currently on scale-back, would benefit from the extra litreage.
His claims were backed up by several industry commentators who spoke to Farmers Guardian and believed the move would, in the eyes of many dairy farmers, widen the gap between the 'haves' on aligned contracts and the non-aligned 'have-nots'.
One industry analyst told Farmers Guardian they believed the move was a 'nuclear' statement of intent by Tesco which exposed its over-riding desire to cut costs and find the cheapest processing option.
Another said they had never seen 'anger in the milk fields' at such a scale, adding when retailers had moved supply in the past it had always been cost, not ethics, which had driven it.