Around 1,600 farmers are set to join one of Europe's biggest dairy co-operatives in a deal that will pool nearly a quarter of UK milk production.
The members of Bristol-based co-operative Milk Link, which is the UK's largest producer of cheddar cheese, have been asked to back a merger with Arla Foods.
The planned combination with Leeds-based co-operative Arla, which is home to dairy brands Cravendale, Lurpak and Anchor, will create the largest player in the UK dairy market, processing more than three billion litres of milk a year and with a combined turnover in excess of £2 billion.
Arla is owned by Danish, Swedish and German dairy farmers and purchases 90% of its milk in the UK through a long-term contract with the 1,300 dairy farmers of Arla Foods Milk Partnership, which has a sizeable stake in Arla's UK arm.
The proposed merger has been backed by the Milk Link board but still requires the approval of its members on June 26, as well as Arla's board of representatives and various regulatory bodies.
Milk Link chief executive Neil Kennedy said the tie-up would create a platform for the long-term growth of the British dairy industry.
He added: "Milk Link's 1,600 British dairy farmer members will have a stake in one of Europe's largest and most successful dairy businesses and play a positive role in its future development."
Milk Link generated sales of £628 million last year and employs around 1,200 staff at eight dairy processing facilities.
It recently completed the building of a new whey processing facility at its Taw Valley creamery in Devon, as well as a soft cheese creamery at Trevarrian in Cornwall and has started the major redevelopment of its Lockerbie creamery in Dumfries and Galloway.
As well as being the UK's biggest supplier of cheddar cheese, it produces Cornish brie, camembert and Stilton cheese and exports its products to around 20 countries.
The UK arm of Arla Foods, which was formed from a merger with Express Dairies in 2003, has five dairies and two creameries and recently started building a new £150 million fresh milk dairy at Aylesbury, Buckinghamshire.
Around 2,700 people are employed by Arla in the UK and the business makes 2,500 deliveries a day to supermarkets in the UK.