700 farmers who make up the Tesco Sustainable Dairy Group will receive a rise in the price they are paid for their milk to 32.77ppl, the supermarket chain has announced."The Tesco Sustainable Dairy Group was established in 2007 to address the uncertainty faced by dairy farmers caused by the dramatic volatility in the markets, providing much needed stability" said Andy Bloor, dairy farmer and Farmer Committee Chairman."The Tesco Fair Price Guarantee continues to pay TSDG farmers a milk price that secures confidence and the ability to plan and invest in their business for the future."The price covers every litre of Tesco own label fresh milk, with the exception of Organic milk. Tesco is the only major supermarket to guarantee that its milk is 100% segregated, meaning that consumers can be assured that every litre of own-brand milk they purchase has come from a TSDG farmer.The new level takes into account an increase of 1.19ppl in the cost of production from 31.58ppl to 32.77ppl primarily driven by the increase in the cost of feed and the significant drop in the volume of milk produced as cows react to the extreme weather. The bad summer weather of 2012 continues to impact on the price of feed around the world.The Dairy Coalition has warned buyers on Wednesday that processors and retailers 'must commit to British farmers' to deliver better market returns as recent reports show a significant drop in incomes.The coalition, which includes the NFU, the Tenant Farmers' Association and the FFA met at Stoneleigh today to discuss market issues and future strategy.Lower prices, falling production and soaring input costs are contributing to falling profitability in the dairy sector. Senior partner at rural accountants Old Mill, Mike Butler, said incomes had slashed last year and the outlook remained bleak."While clients with March and June year ends managed to increase profits compared to the previous year, those with September year ends averaged a 12.8% drop in overall profits, to around £65,000 a herd" he said.In the short term, the coalition has called for urgent and meaningful farm gate price rises for April 1, to ensure a realistic market price.Challenges of poor weather, infertility and feed shortages mean that farmers can only respond to demand for more milk if they are paid a proper price.Tesco will be offering a £40 bonus payment for every Aberdeen Angus calf produced by TSDG farmers from their dairy herd, using specially selected sires. The high quality, 28 day-aged meat will be available as part of Tesco’s Finest range of beef in the future.The £1m investment represents a significant extra income for TSDG dairy farmers, with the payments available for all Aberdeen Angus calves born between January 2014 and January 2015.The payments are being offered to increase the number of Aberdeen Angus cattle in the UK following the retailer’s commitment to source all their Finest range beef from the Aberdeen Angus breed.John Scouler, Tesco Commercial Director said: “Since its launch in 2007, the Tesco Sustainable Dairy Group has led the way in guaranteeing farmers a fair price for their milk and has ensured stability and investment during a period of volatility for the industry as a whole."This increase in price and our investment in Aberdeen Angus beef not only demonstrates our commitment to British agriculture, but also means we can offer our customers some of the best produce British farmers have to offer."