Milk Link and First Milk both process milk into products such as cheese

First Milk and Milk Link are both co-operatives which are owned by thousands of farmers.

Milk Marque was dismantled in 2000 as a result of a critical Competition Commission report that accused it of dictating prices to farmers.

Milk Link and First Milk supply milk to dairy processors and cheese to a host of supermarkets including Sainsburys.

Regulation

The Office of Fair Trading has now been informed by the companies of their merger plans.

Will Sanderson, corporate affairs director at Milk Link, said he was not expecting regulatory problems.

"There are major international players in the UK market," he said. "There's a lot of choice for farmers now."

The companies say there are efficiencies to be gained from working together, including reduced transport costs from farm to factory.

"We are in an international market place. This merger could help us to invest in R&D, marketing and brand development," said Mr Sanderson.

First Milk and Milk Link are currently in a period of due diligence where they will be checking each other's accounts before deciding whether to go ahead.