Asda makes Arla sole supplier of milk

Asda yesterday gave its entire milk supply contract to Arla Foods UK in a move that knocked shares in Robert Wiseman Dairies, which supplied Asda with around 45 per cent of its fresh milk, and Dairy Crest.

Asda yesterday gave its entire milk supply contract to Arla Foods UK in a move that knocked shares in Robert Wiseman Dairies, which supplied Asda with around 45 per cent of its fresh milk, and Dairy Crest.

Shares in Robert Wiseman fell from 283.5p during the day to close at 236p, down nearly 17 per cent on the day.

Dairy Crest, which supplied Asda with around 10 per cent of its milk, has also been left out in the cold as a result of the Arla deal. Its shares fell 4.65 per cent per cent to close at 359p as the company admitted that the contract loss means some £20m of revenues will now disappear.

Asda said the switch to Arla was prompted after concerns that farmers were not being paid enough for their milk. In July last year, supermarkets raised milk prices by 2p a litre, but this has not always been passed on to producers.

Last autumn a number of farmers went on strike to protest against companies such as Dairy Crest for swallowing up the price increases without giving any benefits to the farmers.

The supermarket group asked its three suppliers to come up with a new supply chain that would give Asda a dedicated group of farmers. Arla won the tender, and the switch marks a return to Asda's dairy roots. Asda and Arla were once both part of the Yorkshire-based Associated Dairies, which began life in the 1960s. Chris Brown, Asda's agriculture strategy manager, said: "For the first time in 40 years we will have a direct relationship with every single farmer who supplies us with milk. Arla is able to provide Asda with a segregated supply chain, which uses a dedicated group of farmers. This will enable us to fully trace our fresh milk from the farm through to the bottles in our customers' trolleys."

Wiseman can now expect to lose some £70m of revenues when its existing contract with Asda ends later this year. About 15 per cent of its milk volumes were sold to Asda and analysts are expecting at least £8m to fall off its pre-tax profits this year.

A statement from Dairy Crest also said it "has been successful in winning volumes with other retailers".