Milk from some Cumbrian dairy herds will be flowing into Nestlé at Dalston for the foreseeable future.

The country’s largest dairy co-operative, First Milk, has signed a long-term contract to supply confectionery and beverage giant Nestlé.

This cements a deal between First Milk and Dalston that was first forged in 2003.

The co-operative, which has more than 250 Cumbrian dairy farmers on its books, supplies fresh milk to two Nestlé manufacturing sites, Dalston, which produces beverage products such as Nestlé Cafe Menu Cappuccino, and Girvan in Ayrshire, which produces chocolate crumb.

A dedicated group of First Milk Cumbrian farmers supplies milk to Dalston, while others are contracted to the co-op’s Lake District Creamery at Aspatria.

The deal follows the recent announcement of a £30 million improvement in performance at First Milk, led by chief executive Mike Gallacher.

He said that the companies had been working together since 2003 in a relationship which he said had focused on building a “long-term sustainable supply chain” which benefited both sides.

Mr Gallacher said: “Nestlé are a hugely important customer for First Milk and I am delighted to see this relationship is renewed for the long term.

“They have consistently supported British dairy farmers and are at the forefront of driving best practice on responsible sourcing and sustainability.”

Mike Gallacher He added: “Initiatives like our shared Next Generation Young Farmer Programme demonstrate a long-term and strategic commitment to the UK supply chain.”

Nestlé buyer Robin Sundaram said: “We look forward to continuing our strategic long-term partnership to drive our vision of supporting our farmers and our environment.”

Just last year it was announced that Cumbrian dairy farmers who supply Nestlé at Dalston would be offered a price bonus if they adopt more sustainable farming practices.

The price bonus for sustainability is just one element of Nestlé’s new pricing mechanism.

Their idea was to give farmers they work with more stability around pricing, as well as encouraging them to implement sustainable farming practices.

Farmers can do something involving biodiversity, soil or water – or they can come up with initiatives linked to increasing school visits or doing something to help the community.

However, farmers will still receive a competitive “base price” irrespective of any sustainable activity on farm, said a Nestlé spokesman.

“The sustainability bonus encourages farmers to implement social, environmental and economic sustainability initiatives on farm. It is not prescriptive, and farmers can identify the initiatives which work best for them and their farms,” said the spokesman.

He added: “Initiatives focused on the environment could include encouraging biodiversity, like hedgerows, tree planting, soil health and water courses, for example to alleviate flooding.

“Initiatives focused on social sustainability link to increasing the number of school visits and identifying other ways to engage with local communities.

“The economic sustainability element accounts for activities whereby Nestlé are providing opportunities for farmers to engage in financial benchmarking, best practice sharing and other activities to make them more efficient in their business operations.”

Nestle logo Nestlé would not be drawn on the levels of the basic price or bonus, but a spokesman has told a farming conference that the new formula included a floor and a ceiling to ensure some stability.

Seven First Milk young farmers who supply Nestlé at Dalston and Girvan are taking part in the Nestlé Next Generation Dairy Leaders Programme, a scheme for young farmers that aims to identify, nurture and develop the next generation of dairy leaders.

Just last month the co-op announced it would be paying its 1,000 farmer-owners for a fortnight’s missed milk payments which were deferred in January 2015. The payment was combined with the producer’s standard milk cheque, which meant members would receive six weeks of money.

A move to defer producers’ payments to plug a £10m black hole in its finances followed record £22m losses that resulted from a drop in dairy prices and the collapse in value of cheese stocks. Following the decision, First Milk appointed new chief executive officer Mr Gallacher in March 2015. He implemented 41 recommendations from an external analysis.

In December 2016, the co-op announced profits before tax of £6.8m in the six months to 30 September, compared to a £2.4m loss in the same period last year.

Bank debt fell by £20m to £26.1m.