Dairy Crest will supply 50 million litres of milk to Tesco from 6 December as part of the new deal, it confirmed, as it announced its six-month results.
It is understood the contract was to offset a decline in volumes sourced from Arla. Arla has written to its Tesco farmers informing them of changes to its supply arrangements from 6 December. "From this date Arla will supply a lower volume of milk to Tesco," the letter stated.
Earlier this year, Dairy Crest's percentage share of milk supplied to Sainsbury's fell from 50% to 45%. At the same time, Arla gained its first Sainsbury's orders.
Dairy Crest CEO Mark Allen played down the rivalry, insisting the contract was "a result of our hard work". Arla would not comment. "We don't share details of our relationships with our retail customers," a spokeswoman said.
Dairy Crest also launched a thinly veiled attack on Arla's Anchor butter through its Johnny Rotten ads in October 2008.
Pre-tax profits at Dairy Crest rose 5% to £40.1m in the six months to 30 September following strong performance by its brands, such as Country Life, which was up 2%, but group turnover fell 3% to £776.9m. "With operational efficiencies and selling price increases in certain categories limiting the impact of higher input costs, we are confident we can continue to deliver profits in line with our expectations," said Allen.