Dairy Farmers of Britain says it has walked away from a 6000t cheese contract with the Co-op’s food retailing business.

DFB, a farmer-owned milk processing and brokering business, took on the contract when it bought the Co-op’s milk processing arm Associated Co-operative Creameries in autumn 2004.

However, the three-year deal, which covers mainly own-label cheddar, is due to expire in a few months and was put up for tender.

A DFB spokesman said it had pulled out of the tendering process when it became apparent the Co-op was not prepared to pay enough for the cheese it wanted.

Instead, First Milk and Irish food business Kerry Group will now each be supplying the Co-op with 3000t of cheese.

The DFB spokesman said increasing prices for commodities like skimmed milk powder  meant there were more profitable homes for the business’s milk.

“This shows we’re not afraid of walking away from unprofitable contracts,” he said.

However, First Milk, another farmer-owned business, vehemently denied that it had signed up to a bad deal for its 2800 members.

“We know there were lower offers on the table.”

He said price was not the main reason that First Milk had won the contract.

“While price was part of the mix, their [the Co-op’s] focus was on delivering regionality and provenance to their cheese offering. With five creameries we can do that.”