Major supermarket Woolworths has dumped embattled dairy processor Murray Goulburn from contracts to supply lines of private label cheese, UHT milk, adult milk powder and cream.

Murray Goulburn revealed on Friday morning it had lost out during a tender process to supply those product lines, a move it said would cost it about $108 million, mostly falling next financial year.

Space to play or pause, M to mute, left and right arrows to seek, up and down arrows for volume. Listen Duration: 5 minutes 6 seconds 5 m Bega Cheese CEO Barry Irvine talks about picking up a major contract to supply private label cheese to Woolworths ( Nikolai Beilharz ) Download 2.3 MB

The contracts for cheese lines for brands such as Select have been awarded to rival processor Bega Cheese.

Earlier this year, Murray Goulburn edged out Bega Cheese to supply supermarket Coles with private label cheese.

Bega Cheese chief executive officer Barry Irvine said winning the cheese contract was a scoop, and would bring value to the company.

"We always price in a manner that makes sure we can deliver a return on the activity we're undertaking," he said.

"We've been unsuccessful in the past because we've priced in that manner.

"In this case we're really comfortable we've got a good outcome that will be beneficial to the company, which is ultimately beneficial to our suppliers."

Wide range of companies pick up contracts

Woolworths has awarded the other contracts to a wide range of dairy companies, saying it wanted to align the contracts with producers in their home states.

Fonterra will supply adult milk powder, while Freedom Foods won the UHT milk contract for all states except Western Australia and South Australia, where it will be supplied by Harvey Fresh.

Freedom Foods told the ASX on Friday it would supply the milk through its Shepparton, Victoria operation.

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The private label cream contract was won by Bulla in all states except Victoria, where it will be supplied by Fonterra, and Queensland, where Parmalat will be the supplier.

It means Murray Goulburn, which mainly supplies the export market, will be even more dependent on its contracts with Coles, and its existing sales of Woolworth private label shredded mozzarella and private label butter for domestic revenues.

In a statement, interim chief executive officer David Mallinson said the co-op's lines of branded products would still be stocked in Woolworths, which it said remained an important partner.

"We believe our tender to retain this business was competitive, while balancing acceptable returns for our products given the current environment for our farmer/suppliers and investors," he said.

The loss of the contracts is yet another blow for Murray Goulburn and its farmers and suppliers.

Murray Goulburn shocked the industry in April when it announced a surprise retrospective cut to farm gate milk prices, and downgraded its profit outlook.

A range of other dairy processors followed suit, sparking a crisis in the dairy industry.

Editor's note: This story originally reported Murray Goulburn replaced Bega as the supplier of Coles' private label milk. This has been corrected to reflect the fact that Murray Goulburn won the Coles contract for cheese.