Swedish food retailers welcomed the deal between French dairy giant Danone and Swedish dairy cooperative group Skånemejerier, saying it would improve competition in the Swedish dairy market.

"It is important that we have more than one big player on the market," said Håkan Heldesjö, dairy and meat product category manager at the consumer cooperative KF group.

Mr Heldesjö was referring to the merger between the Swedish and Danish market leaders, Arla and MD Foods, which earlier this year merged to create Arla Foods. The retail sector had feared the Nordic dairy gaint would secure too strong a position on the Nordic dairy market, and thus limiting their purchasing powers.

Danone and Skånemejerier had earlier said that they will set up a jointly-owned company to produce and market existing products from both of the groups, and develop new ones, foremost so called functional foods that carry health-promoting qualities. The company will be owned on a fifty-fifty basis. Danone hopes it will help the company increase sales by 50% to SKr60m next year.

"The Danone product line will be an enormous asset to Skånemejerier, which will make the company a more attractive business partner," said Anders Eskilsson at the ICA group.

Mikael Nordman at the Hemköp chain, the third largest food retail chain after ICA and KF in named order, said the joint-venture did not come unexpectedly and that it was necessary for the smaller Skånemejerier to add some muscle in the light of the mega-merger of Arla and MD Foods.

"The retail industry is rapidly consolidating and that makes it harder for smaller companies such as Skånemejerier," Mikael Nordman said.

"We already carry Danone-produts made in France, but I think the cooperation will lead to Danone moving some production to Sweden, Mr Nordman added.