Sainsbury’s is looking to overhaul the way it pays its dairy farmers by moving to a model similar to Tesco’s - which calculates farmer payments based on cost of production.

The retailer is understood to have commissioned Kite Consulting to investigate how a cost-of-production payment model could be implemented. Kite has already taken cost data from a sample of farmers who supply milk to Sainsbury’s through Dairy Crest and Robert Wiseman Dairies.

Once a model has been devised, it will be put to the farmers in Sainsbury’s liquid milk supply pool - the Sainsbury’s Dairy Development Group - and rolled out to the whole group if at least 66% vote in favour.

At present, there is no link between the cost of production and the premium farmers in the SDDG receive. But as on-farm input costs have soared, Sainsbury’s has faced calls from SDDG farmers to tie its payment method directly to farmers’ cost of production.

A cost-of-production payment model is likely to echo that of Tesco, which pays its Tesco Sustainable Dairy Group farmers based on a formula calculated by independent consultants Promar International.

One SDDG farmer said he believed that, if adopted, the new Sainsbury’s model was “likely to be very much a me-too type formula, almost identical” to the Tesco model.

If Sainsbury’s decides to adopt the formula, dairy farmers supplying it could end up receiving less for their milk, depending on whether Kite believes on-farm costs are likely to fall in the coming months.

Sainsbury’s is expected to change its system even if the SDDG rejects the Kite proposals. Its current system meant the retailer was paying more than the other big four for most of its milk, the SDDG farmer said.

Sainsbury’s declined to comment on its plans and said it never discussed supplier relations. It stressed that it was committed to “long-term, sustainable partnerships” with its farmers, adding that “all of the farmers in SDDG currently enjoy a premium on all the milk they produce.”

Source

Richard Ford

Topics