Tim Smith has stepped down as chief executive of dairy processor Arla Foods UK with a reported £2m pay off.

He has been replaced by Peter Lauritzen, the Danish head of Arla Foods’ (the Scandinavian farmer co-op which owns Arla Foods UK) ingredients business.

A press statement said Mr Smith’s move was by “mutual agreement”.

Finance director Nigel Peet has also left the company.

Despite its abrupt nature, Mr Smith’s departure was widely expected following Arla Foods’ move earlier this year to take total control of its UK subsidiary.

It owned 51% of the company’s shares but had limited day-to-day involvement – apparently a source of frustration in Scandinavia.

Mr Smith had also been forced to issue a number of profit warnings and relations between the firm and its farmer suppliers had become strained.

Farmers will be hoping that Arla Foods’ new boss will more sympathetic to their plight now the business is no longer beholden to shareholders.

Arla Foods’ chief executive Peder Tuborgh said: “We face an important challenge in terms of maximising the potential opportunity in the amalgamation of the two companies and securing commitment and enthusiasm among our colleges, farmers and customers to address the new challenges that we will face.”

Mr Lauritzen said: “Our UK operation is one of the cornerstones of our business. This was an opportunity not to be turned down.”

Tom Hind, NFU chief dairy adviser, said: “I hope this draws a line under the past and allows us to move on and develop a real partnership working with the company.”