Co-op First Milk has agreed a deal with retailer Asda to increase the price it receives for cheese by £300/t. The co-op was continuing negotiations with its other customers and expected to make an announcement on its farmgate milk price soon, a spokesman said.

The move appears to suggest at least one retailer is prepared to pay more for milk for cheese to secure supplies against a background of shrinking UK milk output, a weakening of european dairy commodity markets and a widening premium for liquid milk.

Asda’s Jonathan Betts said the price increase was aimed at reflecting farmers’ increased costs. “Against the current market backdrop, it is important that milk continues to go into making cheese.”