Tesco is to pay its dairy farmers more for milk after the price of production rose due to volatile feed prices and unpredictable weather.
The grocer will pay the 700 farmers in its Tesco Sustainable Dairy Group up to 32.77 pence per litre (ppl) from April 1.
Tesco said the new level takes into account an increase of 1.19ppl in the cost of production from 31.58ppl to 32.77ppl primarily driven by the increase in the cost of feed and the significant drop in the volume of milk produced as cows react to the extreme weather.
It also said the bad summer weather of 2012 continues to impact on the price of feed around the world.
Since its creation in 2007, Tesco has invested £165m into the Tesco Sustainable Dairy Group (TSDG) and in paying above average prices to farmers. Last year farmers protested over the price paid for milk by UK grocers causing retailers including Asda and Lidl to increase the price paid to dairy farmers.
Tesco commercial director John Scouler said: “Since its launch in 2007, the Tesco Sustainable Dairy Group has led the way in guaranteeing farmers a fair price for their milk and has ensured stability and investment during a period of volatility for the industry as a whole.”
Separately, Tesco will be offering a £40 bonus payment for every Aberdeen Angus calf produced by TSDG farmers from their dairy herd which will be used in its Tesco Finest meat
The £1m investment comes just weeks after Tesco was at the heart of the horse meat scandal. The retailer apologised to customers after stocking beef products containing horse meat.