Dairy Crest is pinning its hopes on "health targeted" foods

Pre-tax profits at the group almost halved to �17m during the six months to the end of September from �32m in the same period last year.

The loss of milk supply deals with Tesco and Asda as well as high oil costs had hit earnings, the group said.

The news comes a day after rival Robert Wiseman Dairies said rising costs and supermarket pressure had cut profits.

Pre-tax profits at Wiseman slipped 22% to �12.1m, as a result of lost supermarket supply deals and high oil costs eating into margins.

Trading conditions are competitive with oil-related costs continuing to be high Drummond Hall, Dairy Crest

Increased cost pressures at Dairy Crest reduced margins at its milk division to 1.1% from 4.3% last year as profits sank to �4.2m from �16.1m.

Dairy Crest said the fall was mainly down to the loss of its deal to supply Tesco with 170 million litres a year of fresh milk, which was worth about �60m to the firm annually.

Foods boost

Despite the gloomy results, Dairy Crest's chilled foods division did offer some cheer.

The group said its Cathedral City cheese, Clover butter spread and Petits Filous yoghurts had put in a "strong performance", lifting trading profits at the unit by 3% to �28.9m.

"Overall, although trading conditions are competitive with oil-related costs continuing to be high, the group's expectations for the full year remain unchanged," chief executive Drummond Hall said.

Looking ahead, the UK's largest dairy foods group said a new supply deal with supermarket group Morrisons would boost its dairy division.

It added recent cheese price increases, the integration of companies it had bought - Midlands Co-op dairies and Starcross Foods - and the development of new brands were expected to give it a lift in the second half.