The Tesco deal was worth �60m a year to Dairy Crest

The Tesco deal is currently worth about �60m ($107.8m) a year to the UK's biggest dairy foods group.

Tesco has decided instead to take extra milk from its two other current suppliers, Robert Wiseman and Arla.

Dairy Crest said the impact of the move, which will start from 2005, is estimated at �12m to �15m a year.

The news comes a day after Dairy Crest and Wiseman won long-term supply contracts with Sainsbury's and three months after the two firms lost a contract with Asda to Arla.

'Fair deal' for farmers

Thursday's Sainsbury's deal was seen to be of benefit to farmers, as both dairies take milk from co-operative First Milk - set up to get a fairer deal for producers who said they were being squeezed by supermarkets.

Wiseman expects to pick up an extra �60 to �70m at retail value from the deal, and Dairy Crest a further �8m.

Wiseman has not placed a value on the new Tesco tie-up, but said it would result in its share of the supermarket group's fresh milk requirements rising from 40% to around 60%.

SUPERMARKET MILK SUPPLIERS Asda: Arla Morrisons: Arla, Dairy Crest, Wiseman Sainsbury: Dairy Crest, Wiseman Tesco: Arla, Wiseman Dairy Crest's share price Robert Wiseman's share price

In May, Arla was awarded a contract to become sole milk supplier to Asda, displacing its two rivals.

Dairy Crest's contract with Asda was worth �20m a year.

Wiseman lost an estimated �70m from the Asda deal but the new contracts are expected to have replaced those revenues.

Cost review

Dairy Crest, based in Esher, Surrey, employs around 7,000 people.

It said it would continue to supply Tesco with other products worth �100m a year, but it warned the milk loss would cause it to review its cost base.

Dairy Crest said its share of the UK milk market, worth around �2.5bn a year, was set to fall to 18% by early next year from around 26% at present.

It pledged to start talks with customers and suppliers but did not provide further details.

At 1512 GMT, Dairy Crest shares were down 17% to 317p, valuing the group at around �395m.

Morrisons - which recently bought out rival Safeway - was also reported to be reviewing its milk supply.

Supermarket consolidation

Supermarkets make up almost 60% of the customer base of farmers and some have accused bigger chains of trying to squeeze them for the lowest prices for their goods.

The Milk Development Council said it was difficult to predict the impact of the milk supplier changes on the price farmers are paid.

But the non-departmental public body was unable to say whether it would mean lower "farm gate prices" or whether farmers could reap some benefits as the new contracts were likely to be for longer periods than in the past.

The supermarket milk supply chain is changing

The Tesco announcement was the latest example of a shift in way the supermarkets deal with its suppliers of milk, a MDC spokesman told BBC News Online.

"Retailers have been looking to consolidate supply down to one or two processors, to maximise cost savings."

The Tesco and Sainsbury contracts allowed stability in the market which was a "positive factor in maintaining price", a spokesman for the First Milk co-operative said.