MORRISONS has agreed new three-year contracts for liquid milk with Arla Foods, the farmer owned co-operative, and Dairy Crest.

The supermarket had existing agreements with both and, while it has increased its volume from Arla it has reduced its fresh milk supply from Dairy Crest by around one third.

However Dairy Crest will continue to supply it with high volumes of cheese, flavoured milk, butter and soft spreads. The new contract starts in March and the processor does not expect its financial results for the year ending March 31 to be "materially" affected.

Arla recently opened what is claimed to be the world's most efficient milk processing plant in Aylesbury, where the retailer’s fresh milk is processed. Morrisons believes the investment will lead to stronger returns for Arla farmers in the long term.

Casper Meijer, Morrisons group trading director, said "Following the end of our previous five year contract, we have chosen to continue the relationships with our existing dairy companies ensuring no further volatility is brought to the dairy industry. It’s important that we can assure customers of a long term supply of liquid milk and our existing relationships with both processors have already shown us they can deliver that.”

As part of the contract negotiations, Morrisons held discussions with all the major dairy companies including Graham’s of Scotland who will now supply their brand of milk and butter to its Scottish stores.

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