First Milk and Milk Link, which boast a combined turnover of about 1bn, claim that combining their operations would greatly enhance their ability to add value to their products, in a bid to ensure profitability in a changing dairy market. Ssignificant upheavals in the EU's dairy sector as a result of reforms to the bloc's Common Agricultural Policy (CAP) have affected prices and supply in recent years, requiring processors to revaluate their operations. To achieve this aim, the companies said in a joint-statement that they had already begun due diligence for the deal, with respective board members set to decide on whether they would approve the merger. The move would create a major UK player in global dairy production capable of adapting to challenges like increasing material costs and the need for greater innovation. If the companies obtain both board and regulatory approval for the full merger, the newly formed entity would have a total annual capacity of 3bn litres of milk, representing 4,250 dairy farmers in England, Scotland and Wales. The focus could be vital for the survival of both groups, and the UK dairy industry of a whole, if it wishes to remain competitive against it rivals, according to some market representatives. Just last month, the European Dairy Association (EDA) said that health claims, sustainable production, and trade reforms were all vital challenges to be faced by the industry during the second half of 2007 and indeed into next year. The association therefore called on companies to leverage dairy's reputation as a health food to take advantage of the demand for more nutritional products. A number of other producers in the bloc have also moved to combine with local rivals to stave off the affects of a dwindling dairy supply on their operations. French group's Sodiaal and Bongrain said in June that they were merging their production facilities and staff linked to their cheese brands, in a move designed to boost the products and services it can offer consumers.