Arla milk deal shakes up retail market

Milk processors Robert Wiseman and Dairy Crest are seeking customers elsewhere following Asda's decision to make Arla its sole milk supplier.

The decision will not however affect Wiseman's plans to build a £7m depot for the south-east, enabling it to pitch for Sainsbury's business which is concentrated there. The depot will also be used to partly satisfy a recent annual 40m litres contract with Tesco.

Arla's agreement to supply 265 Asda stores takes effect later this year. The milk will be produced by a group of farmers within Arla Foods Milk Partnership (AFMP).

Arla's director of milk buying Peter Walker said it was able to provide "full traceability of fresh milk from cow to consumer"

The NFU dairy board chairman Gwyn Jones said that the new arrangements were a positive step in connecting farmers with the market; one of the key areas of Common Agricultural Policy reform. However, he warned: "In the longer term, the dairy industry has to ensure that the new arrangements allow farmers to extract greater profitability from the supply chain and negotiate fairly with their customers."

Wiseman could look to recover the lost Asda business, valued by analysts at £5m this year and £8m next year, by pitching to take over Arla's supply deal with other multiples, such as Morrison.

Dairy Crest, which supplied around 10% of Asda's milk compared with Wiseman and Arla's 45% shares, said it had recently gained additional retailer orders.