THE supermarket giant Tesco is facing a supplier revolt over its drive to squeeze down prices to help fund a price war with rival Asda and discounters such as Aldi and Lidl.

Britain’s biggest retailer has contacted many of its large suppliers asking them for cash contributions or lower prices to help the company pass on price cuts to its shoppers.

One of the retailer’s biggest food suppliers told The Sunday Times this weekend that it was engaged in “robust” discussions to resist Tesco’s demands.

It said several large suppliers to Tesco had held informal talks during the past few weeks to agree on some key arguments to fight the price cuts.

Tesco says suppliers can afford to make concessions because commodity prices for key items such as milk powder are starting to fall.

However, the suppliers insist that Tesco is selectively picking out some commodities and ignoring the fact that many ingredients used in sandwiches, ready meals and pizzas such as chicken, tuna and tomato puree still cost more than they did a year ago. The large supplier told The Sunday Times some items were subject to double-digit inflation.

“We’re making it clear to Tesco that the broader picture is one of continued inflation on many commodities, not just the isolated examples they have been quoting.

“Everyone wants to see consumers benefiting in this environment but the hard reality is that the days of really cheap food are over. While some commodities are down from historic highs, the prices in the market for many key ingredients are still up on last year.”

Many food manufacturers commit to buying ingredients several months in advance to ensure they have enough supplies and to smooth out price spikes. As a result, there is a lag before any drop in commodity costs are felt by suppliers.

The suppliers also argue that higher utility bills and packaging prices and the worsening pound-euro exchange rate continue to make life tough.

Tesco’s suppliers have accused it of taking an aggressive stance in the negotiations and simply handing them a sheet of paper with the cost price they will get paid.

Tesco says it is merely negotiating the best deals with suppliers on behalf of customers.

A spokeswoman for Tesco said: “A year ago we worked to help suppliers when commodity prices were going up - now they are coming down it has to be a two-way thing.” The company argues that it has very strong relationships with its suppliers and the latest survey by consultancy Advantage Group found that Tesco was rated the best company in dealing with its supply base.

As well as negotiating new terms with its food suppliers, Tesco has separately extended credit terms from 30 to 60 days for some of its nonfood suppliers, meaning they will have to wait twice as long for payment.

The relationship between supermarkets and their suppliers is under intense scrutiny from the competition watchdog. It wants to create an ombudsman to oversee a stricter industry code of practice to police the relationship.

Meanwhile, Hilary Benn, the environment, food and rural affairs secretary, recently called on supermarket bosses to do everything in their power to help suppliers ease pressure from the credit crunch.

Even Tesco, though, is not immune to the economic downturn and analysts believe the group is squeezing suppliers to help protect profit margins.

Clive Black, analyst at Shore Capital, a stockbroker, said last week that Tesco director Andy Higginson had told him that Tesco was budgeting for a severe consumer slowdown and had already reduced its internal sales forecasts.

Tesco, headed by Sir Terry Leahy, denied it had changed its forecasts but admitted it was worried about the “depth and longevity” of the slowdown.

Tesco remains Britain’s largest grocer by far - with a market share of 31.4% but in recent months it has come under pressure from cheaper rivals such as Aldi and Lidl, both of which have notched up rapid sales growth.

Tesco has responded by launching hundreds of cheaper products in a discount range.

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