Tesco announced yesterday a 1.28ppl price rise for the milk it buys from the Tesco Sustainable Dairy Group farmers. This follows a review by Promar of the cost of production of Tesco suppliers. Its 'Cost Tracker' is forecasting the cost of milk production to stand at 27.68ppl for the October 2010 - March 2011 period with a split of the costs as follow:
The new Tesco price will take the annual average price of the Wiseman Tesco and the Arla Tesco contracts to 27.54ppl and 27.34ppl respectively based on the DairyCo standard litre with farmers who signed to the Promar costing getting an additional 0.5ppl. This will take these contracts to the top of the league table from October, above the Dairy Crest Waitrose and M&S contracts.
This price rise coincides with Wiseman releasing an interim trading update warning that its operating profits will be impacted by around £7 million in the second half of the year to 2 April 2011 'as a result of recent intense competitive pressures across all sectors'. With supermarkets competing to sell the cheapest milk on the one hand - Tesco and Arla are for example selling their own-label 4-pint poly-bottles for £1.25 instead of £1.53 earlier in the year- and the price paid to farmers going up on the other hand, margins in-between are being squeezed. Some commentators have reported that supermarkets are putting pressure on processors to take some of the hit which explains the statement issued by Wiseman. The competition between processors has also recently increased with some small and medium sized businesses which built extra capacity after the collapse of Dairy Farmers of Britain and are now competing to supply convenience stores and the middle ground market.