Deputy chairman of Arla Foods, Knud Erik Jensen, has admitted that the balance between supply and demand of organic milk is not right.

Last year, it accepted 415m kilos of organic milk, but only 165m kilos were marketed as organic. The rest was sold as ordinary milk.

Henrik Refsgaard, chairman of the Organic Farmer Centre, told Ritzau that he thought the discrepancy was Arla's own fault: "They accepted all [the milk] without finding out whether the market could accept it."

"A smaller company like Friland Food has behaved more sensibly and investigated [the market] before they took any new suppliers in."

Henrik Refsgaard, chairman of the Organic Land Centre, agreed: "When it comes to product development, Arla has a lot to learn from the smaller organic dairies."

Arla has around 550 organic milk suppliers, but it is not yet clear whether all their contracts will be renewed.

The situation is bad news for farmers, as increasing numbers are switching to organic. Danmarks Statistik revealed that the number of organic farmers increased by 12% in 2000, 45% of which produce milk.

By Penny Leese, just-food.com correspondent