Asda's cheaper pinta could put industry in a quandary

Moves by leading supermarkets to spend millions cutting the retail price of milk have prompted fears that they will try to recoup the money from other suppliers.

Asda's well-publicised move to slash the price of four pints of milk by 16p and, at the same time, increase the price it pays to its dedicated pool of 550 milk suppliers from its own profit was immediately matched by rivals.

However, despite pledges from Tesco and Sainsbury that they would dip into their own profits to fund the decrease, the news was greeted with dismay by some.

One dairyman, who attended an Asda supplier conference last month, said: "Darren Blackhurst [Asda's new food trading director] said that Asda had lost the initiative on price and basically they are really on the offensive again, which means pressure will be put on all suppliers in due course to pay for it."

Another dairy industry source said: "It is not in the long-term interests of the industry to have these kinds of price cuts, even if retailers are paying for them at the moment.

"Costs are going up, so prices should really be going up, not down. I think everybody is thinking that someone will have to pay for this ultimately, and it won't be the supermarkets."

In January, the average milk price was 0.7p/l higher than a year before at 19.1p/l, according to the Dairy Group consultancy.

The Dairy Group director Nick Holt-Martyn said that buyers were increasingly applying bonuses for forecasts and for accuracy. From April 1, for example, Dairy Crest would pay up to 0.3p/l for accurate forecasting (to within 15%) and the new Milk Link contract will apply a 1p/l penalty on farmers which fall more than 12% outside their forecast.