21 Aug 2018
Tesco milk contract review - what it means
The review of the Tesco Sustainable Dairy Group has left some farmers with difficult questions to answer.
Ben Briggs
Farmers supplying the Tesco Sustainable Dairy Group (TSDG) face having to jump through more compliance hoops for potentially lower financial returns, a dairy expert has claimed.
Independent dairy analyst Chris Walkland said the TSDG review, announced last week, would leave some farmers with a tough choice to make about whether they stuck with the scheme.
TSDG is also looking to recruit an extra 150 suppliers.
Mr Walkland said: “For the first time farmers are going to have to really work for their premium to such an extent that, once market prices recover to a more normal market environment, the premium Tesco gives might, for some, struggle to justify the additional cost and administrative burden.
“However, given the track record of the TSDG for paying a volatility-free price, few farmers are expected to quit.”
Another change has been the introduction of a ranking programme to measure continuous improvements in animal welfare standards, milk quality, environmental management, carbon footprints and ‘engagement with the TSDG principles’, including going into stores to talk to consumers.
The bottom 5 per cent which do not make the grade will be given six-months’ notice, but also help to improve.
“In contrast, the top 5 per cent of producers will be incentivised more, so the net result will be a gradual improvement in the standards of the TSDG pool,” Mr Walkland said.
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All TSDG producers will now be required to submit their accounts data to Promar ‘to monitor progress of the entire group’, while the cost of production (COP) price will be monitored every quarter, rather than every six months. Promar will be paid directly by Tesco for this service, whereas before 0.5ppl went direct to farmers for it.
And Mr Walkland said the use of ‘scale back’ to regulate how much milk Tesco is getting will cause a headache for some.
He said: “Under the new terms Tesco will be sourcing 100 per cent of its milk requirements during the trough, meaning at the peak farmers will see ‘scale back’ applied and will only receive the Tesco price for, perhaps, 70 per cent of their milk.
“Overall, therefore, and if applied to the current market and COP position, farmers could easily be 2-2.5ppl worse off than they were before.”
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