NESTLI yesterday cancelled more than 200 milk contracts with dairy farmers in Cumbria and South West Scotland.

At the same time, the Dalston plant announced a #2.5million investment to safeguard its future in milk processing.

Reflecting changing consumer tastes, 24 jobs will go as the factory stops making condensed milk but steps up production of cappuccino and coffee creamers for the UK and Europe. Two new cappuccino lines will be installed next year.

Instead of buying its milk directly from farmers the company will deal through the co-operative First Milk.

The National Farmers' Union sees this as a "devastating blow" for the 211 farmers affected in Cumbria and South West Scotland, who may get less for their milk when contracts are renegotiated in April.

Nick Utting, NFU group secretary for North Cumbria, said: "Farmers are struggling as it is to maintain their income with extremely low milk prices.

"Now there is a danger that, come next spring, the milk price is going to be forced down further.

"Farmers who suffered from foot and mouth last year have restocked, only to find that their milk buyer isn't going to be there. This has come as a great shock."

Nestli announced the changes yesterday when letters were delivered to farmers, some by taxi.

The firm began consultations in July about scrapping contracts with up to 70 farmers who supply Dalston.

But the decision to stop buying direct altogether has taken farmers by surprise.

Nestli says the existing contracts require it to buy more milk than it needs, forcing it to sell the surplus on the open market. Now First Milk will sell the surplus instead.

Although First Milk will honour Nestli's commitments, farmers are worried that prices will be forced down when contracts are renewed.

Nestli plans to hold meetings today and tomorrow to allay farmers' concerns.

Chris Tyas, group supply chain director for Nestli and a former manager at Dalston, said the factory would need more milk, not less.

He added: "We believe the future of the industry will be served by strong farmer-owned dairy co-operatives such as First Milk.

"The milk price is going to be best served by having strong demand for dairy products and that's what we are trying to achieve."

The letter to farmers said that without the #2.5million investment the Dalston factory would have closed.

The plant will continue to supply milk powder for export but production of sweetened condensed milk will stop by the end of March.

The company has started talks with the Transport and General Workers' Union on 24 job losses among the 240-strong workforce.

It hopes to avoid compulsory redundancies.

Alastair Sykes, chairman and chief executive of Nestli UK, said: "We now enter a period of consultation with affected employees and their representatives.

"We will seek volunteers for redundancy and, where appropriate, we will work with individuals to establish alternative employment."

The changes are part of a reorganisation of Nestli's UK milk business. They include closure of a canned milk factory in Ashbourne, Derbyshire, with the loss of 117 jobs.

Another 20 jobs are going at Girvan in Scotland.

Nestli says the changes are a result of a thorough examination of its business and follow a "difficult period" when foot and mouth, BSE and the inability to increase exports have hit the food industry.

Dalston lost valuable export markets in the Middle East during foot and mouth, when Saudi Arabia banned all British milk products.