Up to 50 UK dairy farmers have been given 12 months' notice on their direct supply contracts with co-operative Arla as it struggles to deal with an anticipated surplus of milk in the wake of Tesco's significant supply switch to rival Muller last month. That deal left the farmer-owned co-op with 200m litres/annum to find a new home for.

Between them the 50 so-called "Arla Direct" farmers, who are not members of the co-op, produce about 40m litres per year and, at about 16p per litre, receive some of the lowest prices in the industry. Only about half a dozen of those affected are in Scotland, although it is understood that 3 of them own substantial herds producing between 5 and 10m litres per year.

In his letter to affected producers, Ash Amirahmadie, Arla's vice president - Milk and Member Services said: "We have worked hard to secure new business and the effort will continue in order to reduce our surplus milk. We commit to giving you regular business updates. If we are successful in winning enough new business so that our surplus milk is reduced to within optimal balancing levels we will contact you to discuss the option of a rescindment of the notice.

Mr Amirahmadie went on to stress: "Our strong desire is for us to be able to rescind the notice."

The milk industry was hit by other bad news this week as both Muller and First Milk announced further price cuts. Muller confirmed a reduction in its standard milk price of 1.35p per litre (ppl) from April 1, while First Milk reduced its March price by 0.6ppl for its four creamery milk pools plus the Northern England balancing pool, and by 0.42ppl for the Scottish balancing pool.

Lyndsay Chapman, agriculture director of Muller Milk & Ingredients explained: "In the current environment where the supply of milk from farms is substantially out of line with demand there are no winners in the dairy supply chain. Market returns are depressed and milk production forecasts for April suggest the months ahead are going to be very challenging for us all.

"We remain focused about the future and are investing heavily in the processing sector to innovate and add value to milk and make our supply chain competitive. However, supply and demand is a major determinant of milk price and at the moment there is a significant imbalance which is having a severe effect on the value of farm-gate milk."

Paul Flanagan, external relations and membership director at the farmer-owned co-op First Milk commented: "From April, the improvement in our business performance has enabled us to increase the proportion of our members' milk which is paid at the higher A prices, from 80 per cent to 90 per cent. However, for March the continued weak market conditions and plentiful supply of milk has impacted on the pricing mechanism we have in place for our cheese business. Therefore we need to cut prices for those milk pools which are linked to cheese manufacture."

The current downturn in milk prices - whether at home, in Europe or across the globe - is the longest and steepest in modern times, placing dairy farming businesses under severe strain.

NFU Scotland's Milk Committee chairman, Graeme Kilpatrick, who farms near Kilmarnock, warned: "At the current level of milk pricing, even the most efficient and resilient producers are worried and NFUS is hugely aware of the psychological and financial impact on farmers.

"We continue to urge dairy producers to take practical steps to seek from their advisers or utilise the resources available through the Scottish Dairy Hub. On a more personal note it could be prudent to think about your neighbour and farming friends to ensure no one feels alone in these troubled times."