Tesco has warned that the inquiry into the alleged fixing of dairy prices may put retailers off helping farmers in future.

Tesco has continued to protest its innocence to the Office of Fair Trading , but the consequences of the investigation could be damaging for retailers' relationships with suppliers and farmers in the long term, said Tesco executive director Lucy Neville-Rolfe.

At the NFU conference this week she reiterated the supermarket's stance that it acted unilaterally in raising prices and said it was responding to the needs of dairy farmers.

"Imagine if farmers hit tough times again, and the industry says it needs help. In the light of the OFT's approach, the retailers will be reluctant to respond," Neville-Rolfe said. "Would we be able to take the risk and help farmers or would we be forced to walk on by?"

She pointed out that Tesco had raised the price it paid to farmers in recent months, and rejected suggestions that the Competition Commission's proposed supermarket ombudsman would lead to better supply chain relations.

"We need to see the detail of the proposals but we are concerned that it could be very bureaucratic, and has the potential to be very costly for everyone in the industry," she said. What was needed above all was a fair relationship between supermarkets and suppliers, and not one governed by "the heavy hand of regulation", she said.

On a more positive note, Neville-Rolfe said demand for local produce had led to farmers receiving higher prices. Suppliers of Tesco's Localchoice milk - which is sourced in or close to the region in which it is sold - receive 28.5p per litre, which Neville-Rolfe claimed was the highest buying price for liquid milk by any UK supermarket.

"All our farmers have direct contracts - that's more than 1,000 farmers with whom we can work to develop long-term relationships and secure a sustainable milk supply."

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