Farmers in the Netherlands, Germany and Belgium are joining forces to create a €9 billion (£7.1 billion) dairy colossus that will compete head-to- head with multinational food enterprises such as Nestlé, Danone and Unilever.

The merger of two farmer-owned co-operatives - Friesland Foods and Campina - announced yesterday, will bring together 17,000 European farms in a venture that will span the globe. It will sell milk products, yoghurt, desserts and infant food in Europe, West Africa, Russia and South-East Asia.

The Dutch merger comes after the collapse in February of merger negotiations between two British farmer-owned businesses. First Milk and Milk Link had hoped to create a dairy business with revenues of £1 billion that would have been able to compete in international markets.

The emergence of Friesland Campina will create dismay within the UK dairy business that British farmers are being left behind again in a commercial land-grab.

First Milk, the largest UK dairy co-op, with £500 million in revenues, is concerned that British dairy farmers will be swept aside if they do not join forces. “We are absolutely dwarfed [by Friesland Campina],” a First Milk spokesman said. “The longer that the UK industry remains fragmented, there is a danger that foreign companies will muscle into the UK.”

The two Dutch co-ops have set their sights squarely on international markets, where the new organisation now leapfrog ahead of international rivals such as Fonterra, the New Zealand giant, Lactalis, of France, Arla Foods and Dairy Farmers, of America. The revenue of even the smallest of these organisations exceeds £4 billion - a measure of the fragmented state of the UK dairy industry.

The dash for growth is being driven by price risk and market share, Rob van Dongen, a spokesman for Friesland Foods, said. By 2015, he said, there will be a free market in milk products as the European Union abandons milk quotas and as price support for European farmers disappears.

“From that perspective, the dairy market is changing. It will be marketed worldwide, but dairy production is mainly local,” Mr Van Dongen said.In a free global market, the ability to distribute your products in other countries is the key to getting the best prices, he said.

Kees Wantenaar, the Campina chairman, said that dairy farmers were affected increasingly by global developments and needed a strong co-operative with a presence in many regions. “This will need to translate into a trend-setting milk price for the members,” he said.

British dairy farmers, unlike their foreign rivals, struggled last year to get price increases, even as the price of milk powder doubled in international markets. Supplies went short because of a drought in Australia and new demand for dairy products in Asia - a new generation of Chinese are turning on to ice-cream sundaes and milkshakes - but lack of infrastructure prevents the British industry from tapping into sudden price surges.

New Zealand's dairy farmers profited hugely from last year's global milk price explosion. The 11,000- strong Fonterra co-op had revenues of about £5 billion last year and individual farmers enjoyed a 60 per cent rise in dividend. However, Fonterra is now at a critical juncture. It must decide whether it wants to expand overseas and raise external capital to make the investments. That would mean diluting the shares in the organisation with non-farmer investors, changing the nature of the organisation.

A plan to raise £500 million from corporate investors was blocked by farmers who worried about the risk of overseas expansion.

“There are always niche markets, but it is difficult to compete as a niche player on an international scale when the supermarkets are big,” Mr Van Dongen said.

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