Arla's loss is Wiseman's gain

Sainsbury is reducing its number of milk suppliers to two and placing long-term contracts with Robert Wiseman Dairies and Dairy Crest from January.

The deal with Wiseman replaces an Arla contract for 145m litres of fresh milk a year and is worth £70m in retail price terms. Wiseman recently lost out to Arla in the battle to become sole supplier to Asda. The Dairy Crest contract is worth an extra £8m in retail price terms to the processor.

Both Dairy Crest and Wiseman are supplied direct by farmers and through the UK's largest milk co-operative First Milk, which has 4,000 members.

"The decision to create a partnership with two main suppliers contrasts sharply with the recent decision by another major retailer to select a single processing company supplied by a relatively small number of farmers," said Sainsbury, which sells 430m litres of fresh milk a year, worth £228m.

Andrew Saunders, analyst at Numis Securities, said that the size of the Wiseman contract was a surprise, increasing Wiseman's share of the supermarket's business from 20% to 51%. "From Wiseman's perspective this is very good news and in itself will go a long way to offset the 180m litres previously lost with Asda," he said.

Sainsbury's decision to drop Arla confirms analysts' predictions that the Asda supplier would be shunned by other multiples, said Saunders.

He added that both Wiseman and Dairy Crest now looked well placed to gain extra Tesco business.