Industry efforts to increase milk prices were thrust into the spotlight this week after the Office of Fair Trading accused dairy processors and supermarkets of operating a cartel.

On Thursday, the OFT gave notice of a proposed infringement of the Competition Act to Asda, Sainsbury's, Tesco, Morrisons and Safeway, as well as Arla, Dairy Crest, Lactalis McLelland, The Cheese Company and Robert Wiseman.

It claimed price fixing of milk, butter and cheese during 2002 and 2003 had cost consumers £270m. But farmers, processors and the supermarkets insisted the claims were unfounded.

Dairy UK, which represents farmers and processors, said the period covered a time when farmers faced falling incomes. "Any price rises then reflected the major cost and income difficulties being encountered by dairy farmers," said Dairy UK director general Jim Begg.

However, the OFT said any collusion on pricing, regardless of motives, was against competition law. "An aggravating factor was that no significant price gains were passed down to farmers," said OFT senior director Sonya Branch.

In its provisional findings, the OFT accused supermarkets and dairy processors of colluding by sharing commercially sensitive information. It added that the parties understood their actions were anti-competitive and had been warned.

The OFT will decide whether the law was breached after it has reviewed responses, no later than the middle of next year.

Sainsbury's, Tesco and Asda said they would "vigorously defend" themselves. Morrisons said it should not be included because the OFT investigation concerned Safeway prior to its acquisition by Morrisons in 2004.