The restructuring plan comes after the government announced a shake-up of the milk supply industry in July to prevent Milk Marque, the major supplier, from exploiting its monopoly by manipulating prices.

Monopoly complaints prompted Milk Marque break-up

Mr Brown said: "This is an important development for the whole of the milk industry. I welcome the fact that Milk Marque's leaders have, in making these proposals, responded positively and constructively to the Competition Commission's findings.

"The industry needs a period of stability to allow all sides to plan ahead with confidence and I hope that these proposals will pave the way to just such a period."

According to the Financial Times, Milk Marque also said the price paid for milk would drop 1p to 17p per litre, a level at which many farmers have complained they cannot make a living.

Mr Brown is expected to announce on Monday that the Treasury will provide �80m to help farmers through what is being seen as their worst trading crisis since the 1930s. But it is not clear whether any of this aid will be targeted at dairy farms.

Milk Marque is a co-operative of about 18,000 farmers which markets some 7bn litres of milk a year, and replaced an official body, the Milk Marketing Board, when the industry was deregulated in 1994.