Dairy Crest is planning a radical shake-up of its milk supply chain to bring stability and allow it to pay farmers more money.

Britain's biggest dairy company, which has been conducting a year-long review of its milk procurement policy, plans to increase the proportion of milk it buys from direct suppliers from 64% this February to about 85% within the next two years. The move could spell bad news for third-party suppliers, such as First Milk, which sells significant volumes into Dairy Crest.

Dairy Crest would work more closely with suppliers on animal welfare and environmental issues, which would also bring supply chain savings and give the company's milk an extra point of difference, said milk procurement director Mark Taylor. It would also allow it to pay dedicated farmers a higher price.

A range of new contracts have been introduced to allow suppliers to commit to particular areas of the business and gain a better price. A two-year fixed base price contract to supply doorstep service Milk&More has been introduced, while a farm business contract has been developed to offer greater price stability to larger suppliers.

Dairy Crest will outsource supplier audits to an independent specialist, freeing up its direct supply managers to spend more time with farmers. It has also established Agri Assist in collaboration with supplier group Dairy Crest Direct, a joint venture that will examine ways of adding value in the supply chain, such as the development of carbon calculators.

"The changes outlined have the potential to deliver significant benefits to suppliers and are the first steps in what I consider an evolutionary rather than a revolutionary process," said Taylor. "This is about ensuring the whole supply chain is as efficient and innovative as it can be."

Last week's announcement was the first of many changes to the supply chain structure, Taylor added, and other divisions such as cheese and dairy drinks were also putting similar initiatives in place.