Arla has hit back at accusations by First Milk chairman Jim Paice that it is undermining UK milk prices with aggressive business tactics.

First Milk recently lost a major cheese contract with Asda to Arla, and Paice claimed in an interview with The Grocer, published this week, that Arla had won the contract by entering an extremely low bid.

“They have probably done untold damage to the dairy industry by the way they went out and got that contract,” he said. “If you bid for a cheese contract at a price you cannot produce it for, the only way you’ll make a profit is with a lower input price on the milk.” He added there was even speculation in the market Arla did not yet have the capacity to produce the Asda volumes.

But a spokeswoman for Arla strongly rejected Paice’s claims. “As a farmer-owned co-operative, our whole purpose is to secure the highest value for our farmers milk while creating opportunities for their growth,” she said. “That means that we pay the highest possible price to our farmer owners, of which from 1 January 2014, circa 3,000 will be British dairy farmers. We pay one of the leading milk prices in the UK, and it is not in our interest to win business at an unsustainable price or negotiate contacts on which we are not able to deliver. That could threaten the financial livelihood of our owners and, in turn, the British dairy industry. Our farmer owners invest in building dairies and supply chains that are highly efficient, enabling us to produce products of excellent quality and deliver a great servicepaice to our customers.”

Following the loss of the Asda business, First Milk launched a consultation on closing its Maelor packing site in Wales last month.

It also announced a partnership with Adams Foods, under which First Milk Cheddar will be packed and marketed by Adams, two weeks ago.

Read the full interview with Jim Paice (subscribers only).