WORCESTER-based dairy co-operative First Milk has stopped supplying milk to Express Dairies following a dispute between the two milk giants.

First Milk, which moved its head office from Lower Wick to Hallow in March last year, is Britain's largest supplier to the £9m-per-day fresh milk industry.

But following a dispute over prices, the farmer-owned business, which represents more than 4,000 dairy farmers, has stopped supplying Express Dairies at Liverpool, Nottingham and Wythenshawe.

"This is a serious situation for the whole industry. We've reached this position with very great regret," said John Duncan, First Milk's chairman.

"However, we have a duty to our milk producers and to our other customers to ensure that we do not concede preferential terms to one customer to the detriment of others. This principle is particularly crucial in the highly competitive retail milk sector."

Mr Duncan said last month, First Milk was presented with demands from Express Dairies that were unreasonable to First Milk's members and to its other customers.

"The demands would have significantly weakened both farm gate and retail prices. Accordingly, we were forced to reject those demands, stop supplying milk and sell the milk elsewhere," he added.

"This decision has not been taken lightly - milk supplies are currently in surplus and extremely difficult market conditions are already putting farm gate prices under pressure."

The dispute is currently the subject of litigation but Mr Duncan said First Milk had offered to continue supplying milk to Express Dairies until 31 March, 2002, pending the court's decision.

"But late in December, and without notice, Express Dairies refused to take further deliveries from First Milk after 31 December, 2001, unless First Milk would agree a substantial price reduction. First Milk has rejected that ultimatum," said Mr Duncan.

The retail milk sector accounts for around 18 million litres of milk per day, worth more than £3bn a year at retail prices.

First Milk has an 18 per cent share of milk produced in England, Scotland and Wales, worth around £500m a year.

Chief Executive of Express Dairies, Neil Davidson, said: "Since April 2001, First Milk had only been prepared to commit to supplying raw milk on a short-term basis which was an unsatisfactory position."

So from January 1, 2002, Express Dairies had entered a secure supply agreement with The Milk Group.

"Security of supply is paramount to our business and we are delighted to have secured a long-term supplier in The Milk Group, said Neil Davidson.