Bega Cheese said in a statement to the Australian Securities Exchange (ASX) on Monday morning the five year supply deal will cease on January 25 next year.

Within minutes of the announcement the company’s share price dropped from $7.15 to $6.29 a share.

“Bega Cheese expects to manage the change in our business mix over the coming 12 months in a manner which will sustain the underlying financial performance and trajectory of the business,” Bega Cheese said in its statement to the ASX.

The new contract has been won by Australia's largest dairy co-operative, Devondale Murray Goulburn, which began supplying pasteurised milk for Coles’ private label in Victoria and New South Wales in 2014.

“The change in the supply arrangements at Coles will see Bega Cheese redirect the related milk supply to other value added dairy products and markets including our rapidly growing infant formula and nutritionals platform,” Bega Cheese said.

The initial deal was signed in 2012 and was one of the company’s first long term supply agreements with Coles, Australia’s second largest supermarket chain.

“The focus on higher value product mix and markets is consistent with the strategy of the business and will see a significant decrease in inventory holding for the company with up to $60million of cheese inventory being realised as a result of the change of supply arrangements with Coles,” Bega Cheese said.

Despite the loss of contract Bega Cheese said it remained hopeful of further relationships with the supermarket chain.

“Bega Cheese has a very constructive and positive relationship with Coles and is confident it will continue for the remainder of the contract and beyond,” Bega Cheese said.

A Coles spokeswoman said the company would continue to stock Bega-branded cheeses.

"We look forward to continuing our good relationship with Bega Cheese and remain committed to stocking branded products produced by Bega Cheese," the spokeswoman said.

"This year we will continue to source Coles Brand cheese from Bega Cheese and stock around 20 Bega-branded products in our supermarkets."

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