Britain's Tesco hikes price it pays milk suppliers by a fifth

LONDON (Reuters) - Britain's biggest retailer Tesco will increase the price it pays for all its fresh milk by nearly 20% as suppliers battle unprecedented levels of on-farm inflation, it said on Wednesday.

The group, which has a 27.4% share of Britain's grocery market, said the 520 British dairy farmers that make up Tesco's Sustainable Dairy Group (TSDG) will see the retailer pay them 40.84 pence a litre in May versus 34.16 pence a litre currently.

The farmers will also see an interim price rise in April, Tesco said.

The rise reflects the soaring cost of feed, fuel and fertiliser that dairy farmers are having to endure.

Tesco declined to say what the implications would be for the price shoppers pay for milk.

CEO Ken Murphy said in January the grocer would do its "very best" to manage inflationary pressures.

Several of Tesco's own brand milk lines, including four-pint variants, are covered by a scheme which matches the prices of German-owned discounter Aldi.

On Tuesday, market researcher Kantar said UK grocery price inflation hit 5.2% over the four weeks to March 20, the highest level since April 2012.

The Kantar data also showed Tesco continuing to outperform its big four rivals - Sainsbury's, Asda and Morrisons.

(Reporting by James Davey; Editing by Alexandra Hudson)