Tesco cuts contracts with dairy farms supplying milk 'amid declining sales'

Tesco has announced it will cut some of its contracts with dairy farms supplying milk amid declining sales later this year.

The supermarket giant said a “small number” of producers will be affected, with further details to be revealed in September.

The Tesco Sustainable Dairy Group (TSDG) was established in 2007 and currently has around 400 farmers.

The National Farmers Union Scotland say that Scottish dairy farms could be impacted by the move.

Chiefs said while milk sales are decreasing, the market of other forms of dairy such as yoghurt, cheese and butter is “robust.”

NFU Scotland milk committee chair, Bruce Mackie, said: “The announcement from the Tesco Sustainable Dairy Group (TSDG) that it is to reduce the number of dairy farmers directly supplying the retailer for its own label fresh milk will likely see some Scottish dairy farmers lose that contract even after those who opt to voluntarily retire from production are taken into account.

Farmers' union says supermarket giant's move is in response to declining milk sales — Farmers’ union says supermarket giant’s move is in response to declining milk sales STV News

“Established in 2007, the TSDG was the first supermarket aligned contract and is the largest group of dairy farmers working directly with a retailer in the UK. We will use our network of members to assess how the decision will affect them and how we can assist.

“It is understood that, from late September, those affected will be given 12 months’ notice and that the decision will be served across all volume bands.

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

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

“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.

“Yoghurt, in particular, has benefited from consumers recognising the many health benefits, with high-protein and probiotic varieties gaining popularity.

“Butter sales have also seen a resurgence, driven by the move away from margarine and processed spreads.”

Dairy farms have decreased over the last six months, figures show iStock

Tesco confirmed the farm contracts being cut will be announced in September, with those affected being given 12 months notice.

A Tesco spokesperson said: “Our Tesco Sustainable Dairy Group farmers benefit from fair prices based on the cost of production. 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.

“We’re making some changes to the group which will affect a small number of our dairy farmers. 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.”