Dairy Crest has secured its contract to supply fresh liquid milk to Sainsbury’s for a further three years.

The news comes as the company announced a major internal reorganisation today.

The new Sainsbury’s contract will see Dairy Crest supply around half of Sainsbury’s milk – the amount it currently supplies – between February 2014 and February 2017.

However, although the volumes are the same, it is understood that Dairy Crest will be supplying milk to Sainsbury’s at a lower cost under the new contract. Dairy Crest said: “Although the conditions of the contract will change from 2014, our ongoing cost reductions are expected to offset any financial impact on our business.”   

Muller Wiseman Dairies and Arla currently supply the remainder of Sainsbury’s milk. The Grocer is awaiting confirmation regarding the status of their supply contracts with Sainsbury’s. 

Dairy Crest’s track record of making efficiencies allowed it to supply its customers with competitively priced milk, pay its farmers a fair price and move towards its medium-term target of 3% return on sales in its dairies business, said chief executive Mark Allen.

Sainsbury’s was committed to its dedicated British dairy farmers, said Sainsbury’s CEO Justin King, adding, “our vision is to build strong relationships throughout our supply chain, ensuring a fair price for our farmers.”

This morning, Dairy Crest also announced a reorganisation of its structure at HQ, which will see the combination of its two division, food and dairies, into one. Dairy Crest anticipates it will lead to annual cost savings of £5m but a spokesman denied the restructure was prompted by the Sainsbury’s contract negotiations.  

The restructure will result in a number of changes within its senior management team.

Toby Brinsmead, MD of Dairies will leave in May 2013 and Martyn Wilks, current executive MD heading up the Foods business, will head up the combined division.

Mike Barrington will become group supply chain director of the combined division, having previously headed up supply within the Dairies division.

Robert Wilcock will become group HR director, and will join the management board from 1 April 2013. Tom Atherton will replace Alastair Murray as finance director on 23 May.

Corporate affairs director Arthur Reeves and director of corporate development, Roger Robotham, will both step down from the management board from 1 April 2013 but will remain in the business.

A number of redundancies would be announced in the coming weeks, Dairy Crest said.