First Milk and Milk Link have welcomed the Office of Fair Trading's decision not to refer their merger plans to competition authorities - effectively giving it the green light.

Having looked at territorial, milk supply, cheese production and cheese packing issues, the OFT said it "did not believe the merger may be expected to result in a substantial lessening of competition". It indicated that the industry as a whole was broadly supportive and added "the majority of third parties did not express concerns".

The OFT, which had been seen as a potential hurdle to the creation of the £1bn turnover, three-billion-

litre business, said the proposed merger would have no negative impact on consumers.

Milk Link and First Milk stressed the benefits for retailers. "Should the merger proceed, we believe our customers will benefit from an enhanced ability to deliver service excellence, security of supply and product innovation," said a spokesman.

"Retail customers in particular have expressed a commitment to working more closely with farmers and this move will give them an opportunity to do so without having to liaise with lots of small producer groups."

Such moves would keep the UK milk industry competitive, said the NFU's chief dairy adviser Tom Hind. "We have to get economies of scale to compete internationally," he said.

NFU Scotland said the OFT's decision, made shortly before Christmas, was "very good news and represents a forward-thinking approach to the dairy sector".

But the OFT's decision doesn't mean the merger will automatically go ahead. The boards of the two companies, currently carrying out due diligence procedures, must first recommend a merger to their farmer members, who must vote for it to happen. If all goes to plan, the new company could be up and running by 1 April.