Arla Foods, the UK's biggest milk processor, has gone back on its pledge not to screw down the price paid to suppliers.

Just two months after promising not to cut the pence per litre (ppl) price, Arla said it would be forced to reduce liquid milk payments to offset a rise in the costs of fuel and other raw materials.

The company said that it had experienced "significant" inflationary pressures equivalent to 1ppl -- a rise that it planned to recover from producers and customers. "We have begun price negotiations to recover this from the market," it said. Arla is also tightening its belt with the closure of a regional distribution centre at Stratford in April.

The company is not alone in facing rising costs. Competitor Robert Wiseman reduced the price it paid milk suppliers by 0.5ppl late last year.

Meanwhile, Yoplait Dairy Crest will close its own-label fresh dairy products factory at Yeovil in June with the loss of 260 jobs.

The company said the closure would enable it to move out of the low margin own-label market and focus on the development of more profitable branded products, such as its Petits Filous, Frubes and Yop brands, which it said were continuing to show strong growth.