Robert Wiseman Dairies has cut its ex-farm milk price by 0.9p/litre.
The company blamed the widening differential between it and its main competitors in the liquid milk market, as well as falling cream values.
The price cut takes effect from 1 August, and will affect its 800 farmer suppliers.
First Milk members are also likely to be hit, as Wiseman buys 25% of its output.
The new standard litre price of 18.38p/litre is guaranteed to be a minimum until January 2007.
In a statement released today, the company said: “Recent, well publicised farm gate milk price reductions had served to leave Robert Wiseman Dairies badly out of step with the price paid by the rest of the market.”
The company had been funding a differential of up to 1.5p/litre over other major processors.
The gap widened to more than 2.5p/litre over prices paid by co-operatives operating in the crucial ‘middle ground’ sector, which included neighbourhood shops and symbol group retailers.
Pete Nicholson, milk procurement director at Robert Wiseman Dairies said: “We have held our milk price until the end of this month despite other sector price reductions in April, June and July.
“We have continued to differentiate the element of this reduction which reflects the deterioration in the value of cream. This represents 0.2p/litre of the cut.
“We have provided some stability by guaranteeing the price for six months as a minimum and if there is a basis for a positive adjustment, it will be made.”