Muller has dropped its milk price by 1ppl as the gap between the major players in the market widens.
Producers on Muller Direct Premium contracts will be paid 25.75ppl from October 1, with those on the fixed price contract being offered 28ppl.
It means Muller is now 5ppl behind Arla, which has held its price at 30.22ppl for eight months in a row.
Muller blamed record levels of milk production at a time when demand for fresh milk and other dairy products was falling.
Rob Hutchison, the processor’s milk supply director, said this misalignment had seen the value of commodity cream plummet by 37 per cent in a year, with butter values also badly affected.
Mr Hutchison said: “This is an extremely difficult period for the whole dairy supply chain in the UK and whilst this supply and demand imbalance persists, it appears likely that market values will remain depressed.
“Muller Direct dairy farmers who chose to hedge against volatile market conditions by using our fixed price option will be cushioned to a certain extent, but for the whole industry to move forward it must work more coherently and effectively together to align with the needs of customers and consumers.
“Muller is playing its part by ensuring that it has the dairy network capabilities, the fully recyclable and light-weighted packaging proposition and the herd health standards which consumers demand.
“We are confident this will place our business and supplying farmers in a strong position as the sector emerges from this period of significant and fundamental change.”
It came as Arla announced a 3 per cent revenue growth of 3 per cent in the first half of 2019 with a net revenue of £987m (€1.131bn).