Sainsbury’s is to change the way it pays its dairy farmers for their milk to a system based on cost of production.

An “overwhelming majority” of Sainsbury’s Dairy Development Group farmers had voted in favour of the new system, Sainsbury’s said.

The new pricing structure will apply to the 324 SDDG farmers from 1 May. Farmers will then receive a total milk price of 30.3ppl compared with 30.6ppl at the moment.

“It’s a real vote of confidence in our approach,” said CEO Justin King, following five years of close partnership, “and will help farmers at a time when market prices are so volatile.”

The new milk price - to be calculated by Kite Consulting - will be based on a quarterly review of feed, fuel and fertiliser costs, using published sources. Audited SSDG farm accounts will be taken into consideration.

Previously, the SDDG farmers’ milk price was made up of the price paid by the processors - either Dairy Crest or Robert Wiseman Dairies - plus a 2.1 ppl Sainsbury’s premium, not linked to the cost of production.

Prior to the vote, on 12 April, Sainsbury’s had been expected to adopt a formula similar to the one used by the Tesco Sustainable Dairy Group Farmers based on production cost forecasts calculated by consultants Promar. The SDDG price is based on historical figures.

“The farmer suppliers have clearly identified this as a sustainable and equitable basis for a long-term relationship with Sainsbury’s,” NFU dairy board chairman Mansel Raymond said.

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