Dairy Crest has announced it has lost its liquid milk supply contract with Tesco and that it also plans to close two dairies later this year.

Tesco bought about 3% of Dairy Crest’s liquid milk in 2011/12 and the board confirmed today (17 April) that the contract would not be renewed when it ends in July. The decision does not affect supply of its key Cathedral City, Country Life, Clover and Frijj brands to the supermarket.

Tesco will source its liquid milk through Robert Wiseman Dairies and Arla. A spokesperson said that the 25 Tesco Sustainable Dairy Group farmers supplying through Dairy Crest would be given the option of retaining their contract by transferring milk to Wiseman or Arla.

Dairy Crest also confirmed it would consult employees on the closure of its glass-bottling dairy at Aintree, Liverpool and its polybottle plant at Fenstanton, Cambridgeshire, with production shifted to other sites.

The closures were needed to protect the future of the company’s dairies division, which was under sustained pressure, but had not been driven by the loss of the Tesco contract, Dairy Crest chief executive Mark Allen said.

“The decision to consult on the closure of our Aintree and Fenstanton facilities has not been taken lightly, but we believe this proposed restructuring of our dairies business is the right decision for the long term. We will do all we can to help employees who may be affected by these proposals.

“With lower net debts at the year-end than we anticipated, the group has positioned itself well to absorb the [£15m] cash costs associated with these closures,” he added.

The proposed closures were in addition to an ongoing £75m investment programme to improve efficiency and increase capacity at other polybottle dairies in Gloucestershire, London and Derbyshire.

Dairy Crest will continue to supply residential customers with milk in glass bottles from its Hanworth dairy in London should Aintree close.

The NFU said it recognised there would be a regrettable loss of jobs and would be discussing the implications of the closures with Dairy Crest.

The group’s preliminary results for the year ended 31 March 2012 will be announced on 24 May 2012.