One of Britain's biggest food suppliers is cutting up to 730 jobs after refusing to accept the terms of a new long-term contract with Marks & Spencer.

Northern Foods said that it had no choice but to close a factory in Lincolnshire that supplies the retailer with more than half a million Italian ready meals each week.

Stefan Barden, Northern Foods' chief executive, said that the group had been unable to agree a deal for the site that would have generated an adequate return for shareholders.

The move comes three months after M&S enraged suppliers by asking for discounts of up to 2.5 per cent, depending on how much it bought from them, in a review of its food business.

The Northern Foods plant in Grantham will be mothballed at the end of August. It may not reopen until 2010.

Mr Barden told The Times: “M&S believes it can get products of the same quality elsewhere in the market place. We are moving on, they are moving on. We could not find a business model that was profitable for us.”

The ready meals plant was built specifically to supply M&S in 1987. It supplies about 15 per cent of all the products that Northern Foods makes for M&S. Although generating £45million in revenue each year, Northern Foods said that the plant had broken even only in 2007. The remainder of Northern Foods' contracts with M&S are understood to be not affected.

Quentin Davies, the Labour MP for Grantham and Stamford, said that the closure was a “devastating blow [to the area] ... To have a plant dependent on one single customer is an accident waiting to happen.”

Northern Foods' decision reflects the tension between food producers and retailers as food inflation spirals and consumer spending slows down.

An M&S spokesman said: “Northern Foods decided the site was no longer economical and they decided to proceed with the closure. They remain an important supplier to us and we will continue to work with them.”

Northern Foods shares fell 3p to 85p.

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