Tesco yesterday increased pressure on suppliers by ending a 20-year relationship with Dairy Crest, sending shares in what is one of Britain's biggest dairies tumbling almost 18 per cent.
Dairy Crest, one of the UK's three largest milk suppliers, has in the past three months also lost a contract to supply milk to Asda, raising fears that it will have to close dairies and cut jobs.
Yesterday's move marked the latest effort by the supermarkets to secure a stronger grip on their supply chains. Suppliers have complained about their relationship with the four main supermarkets, prompting an audit by the Office of Fair Trading.
The milk suppliers suggested that the trend was inevitable: "Yes, it is a disappointment to lose this fresh milk contract, but there is a round of consolidation going on," said Ms Sinead Noble, Dairy Crest spokeswoman.
Market hopes that Dairy Crest could make up for the loss by winning an exclusive contract with Wm Morrison were dashed last night when Morrison said it had decided to stick with all three suppliers.
The loss of the £60 million (€89 million) a year contract alone will cut Dairy Crest's share of milk sold in supermarkets from 26 per cent to 18 per cent. Ms Noble said the company's next moves would be revealed in an update on September 22nd.
Tesco's decision followed J. Sainsbury's move this week to cut its milk suppliers from three to two. Asda, owned by Wal-Mart of the US, set the ball rolling in May, when it moved to a single source, Arla, for its milk, jettisoning Dairy Crest and Robert Wiseman, after which shares in Robert Wiseman plummeted almost 20 per cent.
The supermarkets said the decisions were aimed at forging long-term partnerships with suppliers who had national coverage.
Farmers, however, saw it as an attempt to further squeeze prices in an industry already in decline. "I'm not crying wolf to you. It is a very bad week for dairy farmers," said Mr David Handley, who heads the lobby group Farmers for Action. He said dairy companies had already cut prices to farmers this summer.
The actions of the supermarkets have cast a pall over the share prices of the three main dairy suppliers amid fears that all have had to promise deep cost cuts to keep supermarkets happy at a time of rising fuel and packaging bills. - (Financial Times Service)
