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Last Updated: Thursday, 26 August, 2004, 10:26 GMT 11:26 UK
Milk deal 'to help dairy farmers'
Better times for dairy farmers ahead?
Supermarket chain Sainsbury's has agreed a new milk supply deal which could benefit hundreds of UK farmers.

Robert Wiseman and Dairy Crest have won long-term supply contracts with the firm, which sells 228m of milk a year.

The dairies take milk from farmers co-operative First Milk - set up to get a fairer deal for farmers who said they were being squeezed by supermarkets.

Wiseman expects to pick up an extra 60-70m at retail value from the deal and Dairy Crest a further 8m.

As a result of the agreement, Sainsbury's milk supply deal with Arla Foods will end in January 2005.

The firm had supplied just over half of Sainsbury's milk, with a retail value of more than 110m per year.

This is the best news for British dairying for quite some time
John Duncan, First Milk
Leeds-based Arla recently beat rivals Wiseman and Dairy Crest to a new deal with Asda, the UK's number two supermarket.

At the time Robert Wiseman had said it would lose around 70m in revenues after missing out on the Asda contract - it now expects the Sainsbury's deal to make up for much of the shortfall.

Under the terms of the deal, the East Kilbride-based group will increase its share of supplies to the supermarket from 20% to 50%.


Financial terms of the agreement were not disclosed, but Sainsbury said it sells 430 million litres of fresh milk a year with a retail value of 228m.

"We are all delighted to have been rewarded by Sainsbury's with this increased contract which is a major boost for all the employees and milk suppliers of Wiseman Dairies," managing director Robert Wiseman said.

"This is the best news for British dairying for quite some time," First Milk chief executive John Duncan said, adding that farmers would benefit from the increased stability offered by the deal.

Meanwhile, in a veiled attack on Asda, Sainsbury's said the agreement "contrasts sharply with a recent decision by another major retailer to select a single processing company supplied by a relatively small number of farmers".

UK farmers have been facing increasingly tough times as costs rise and prices fall.

As recently as June, MPs on the Environment, Food and Rural Affairs Committee acknowledged that the average price paid to farmers for a litre of milk did not cover the average cost of producing it.

Supermarkets make up almost 60% of the customer base of farmers and some have accused bigger chains of trying to squeeze them for the lowest prices for their goods.

Supermarkets aim to get the cheapest prices by buying in bulk, and so tend to steer clear of individual farms which has prompted a rash of farming co-operatives springing up to combine their produce.

That means they can lower the cost of processing and distributing produce, while also selling it in larger quantities, thus making it more attractive to big name buyers.

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