It follows last week's announcement by Arla Foods of a €527m ($644.7m) investment in its global operations for 2018.
The transaction will give Arla Foods the rights to use the Yeo Valley brand in the UK for milk, butter, spreads and cheese under an intellectual property license with Yeo Valley.
The Yeo Valley yogurt, ice cream, cream and desserts business will continue to be run independently through Yeo Valley Group, which remains under the ownership of the Mead family.
Peter Giørtz-Carlsen, executive vice president and head of Europe in Arla Foods, said the potential for organic dairy products in the UK is significant, and the investment through the licensing agreement with Yeo Valley “provides a significant opportunity to offer a greater choice to consumers at attractive prices.”
Giørtz-Carlsen said, “Our ambition is to encourage customers in the UK to trade up from standard to organic milk, butter and cheese, driving overall growth for organic across dairy categories.”
According to Nielsen data, organic milk represents only 4% of the fresh milk sold in the UK, compared to 10% in Germany, 16% in Sweden, and 29% in Denmark.
Arla said in the UK, the Arla Organic Free Range milk has driven 60% of all growth within the organic milk category in the last 12 months, with 70% of all Arla Organic Free Range milk sales attributable to customers who would have not previously purchased organic milk.
With one in four households now purchasing organic products, Arla Foods said there is opportunity for the UK dairy sector to convert more of its customers from standard to organic dairy.
Tomas Pietrangeli, managing director, Arla Foods Limited, said organic milk has a key role to play as consumers increasingly look for ways to make their diets healthier.
“Its production without the use of artificial or manufactured herbicides and fertilizers and with high standards of animal welfare are key reasons it is in growth, especially with younger consumers,” Pietrangeli said.
“Arla is working with industry bodies to continue to help consumers understand the additional benefits that come with organic milk."
Completion of the transaction will take place following approval by the UK Competition and Markets Authority.