The Sainsbury Dairy Development Group (SDDG) will comprise of up to 450 dairy farmers from the direct suppliers of Robert Wiseman Dairies and Dairy Crest, who supply Sainsbury's total requirement of 420 million litres of fresh milk each year.
"In the Vision for the Dairy Industry the NFU advocated retailers and farmers coming together to create relationships that would foster more trust and mutual understanding," said Gwyn Jones of the NFU dairy board.
The food retailer hopes that, by having the SDG and a group of dedicated local farmers supply stores with milk, they will be able to pay them more, charge customers less and reduce road miles that produce travels.
"We welcome the opportunity to get closer to our end customer, and we are pleased that there is a long term commitment from Sainsbury's to help us find efficiencies and innovation in the chain," said Andy Bloor, chairman of the Wiseman Milk Partnership.
Sainsbury's will support the group's members and help them achieve higher levels of profitability through innovation and efficient projects and has already underpinned its commitment to the group with a new 18 month contract for fresh liquid milk agreed with Robert Wiseman Dairies and Dairy crest.
The supermarkets decision follows that of Asda who adopted the NFU's 'vision for the dairy industry' two years ago. Asda confirmed that it has paid out nearly £6m (€9m) extra as a result of the deal which entitles its farmers to 1p extra per litre above the Arla price base.
Asda appointed Arla to become its sole supplier of fresh milk. As a result of this move a dedicated group of 550 producers, the ASDA Farmer Partners, began solely supplying Asda with its own label fresh milk.
The supermarket took the opportunity to welcome Sainsbury's decision to follow its lead and start working directly with dairy farmers rather than sourcing milk from an anonymous pool of producers.