As Tesco again displayed its power in the UK food chain with another profits rise, dairy group Arla Foods joined a growing list of processors to raise farmgate milk prices.
Arla UK, now owned directly by its Scandinavian parent Arla Foods, said it would pay farmers an extra one pence per litre (ppl) for their milk from this month.
The rise, which will go to members of Arla Foods Milk Partnership, is a further positive sign for UK dairy farmers this year, following growing public concern over the future of the industry.
Arla's move also came as supermarket giant Tesco unveiled profits exceeding the £2.5bn mark, up from £2bn two years ago.
Tesco, with a reputed 31 per cent share of the UK grocery market, has been hit by considerable criticism over its practices in the supply chain during the last year - as a Competition Commission probe into the UK grocery chain has got under way.
But farming and dairy groups praised the supermarket recently, after it announced it would introduce direct contracts for 850 dairy farmers and pay them 22ppl. The average is around 18ppl.
Arla, a supplier to Tesco, added to that praise this week.
Peter Walker, Arla director of milk buying, said: "Arla is now working very closely with the Tesco team to put in place the supply chain arrangements to meet Tesco's criteria so that their designated producers are in receipt of the Tesco price of around 22ppl at the earliest practical date."
He said both firms wanted to complete the project in three to four months.
Farmers will hope the new arrangement can offer them more security, and the National Farmers' Union has already called for others to follow Tesco's lead.
Up to one third of UK dairy farmers may quit the sector over the next two years, according to a survey published by the Milk Development Council last week.
