Lactalis said it would respect recommendations for a national farmgate milk price across France in the second half of 2006, "unlike the Sodiaal co-operative which is introducing, without cross-industry agreement, a cut of €3.95 per 1000 litres".
The move marks a climbdown for Lactalis, which was last month criticised over milk price cuts alongside Sodiaal by France's National Milk Producers' Federation.
Farmgate milk prices have been falling across the European Union recently, according to figures published by Britain's Milk Development Council. The trend has increased tension between processors and producers.
The price drop has shocked French producers in particular, largely because France had the second-highest farmgate milk price in the EU in 2004.
Prices in Normandy, one of France's main dairy regions, tumbled 3.8 per cent on average last winter, according to the local Chamber of Agriculture.
And Lactalis, as France's largest milk processor, has faced down a series of protests from producers over the last year as industry anger over price cuts has spread.
Subsequent industry discussions led to an agreement last January to publish recommendations for industry-wide farmgate milk prices going forward. This was intended to stop rivalry between milk processors leading to exaggerated price cuts.
That deal still stands, although Lactalis warned it would consider breaking rank to stay competitive if Sodiaal continued to cut prices.
As in other EU countries, the rising cost pressures on France's dairy industry have accelerated consolidation, according to recently published report from the government's dairy executive agency, ONILAIT.
It said six per cent of businesses disappeared last year, and average milk production per business rose to 232,000 litres. Market share of milk production held by independent producers has fallen from around 60 per cent to 38 per cent in the last decade.
The French government recently set aside a further €10m to aid consolidation and restructuring in the French dairy industry, as part of a strategic plan for the sector launched in 2004.