MG was formally notified on Thursday night of the supermarket giant’s decision, after it was outbid in a competitive tender.

Murray Goulburn shocked the sector in April when it downgraded its forecast 2015-16 profit to between $39 and $42 million, down from its February guidance of $63 million, itself revised from its prospectus the previous July of $89 million.

Chief executive Gary Helou resigned on the same day and the company implemented a savage and retrospective cut to the farm gate price it pays its farmer-members, including clawback provisions for milk already paid for.

During the recent federal election campaign, the Turnbull government announced a rescue package for dairy farmers, including low-interest loans.

Helou had aggressively scaled up the co-operative’s production capacity, building debt-funded plants and signing a 10-year deal to supply Coles’ private label milk, in the lead up to a partial float last year. 

This strategy coincided perfectly with a crash in the global price of milk powder.

Bega will take over Woolworths’ cheddar cheese production in January. 

Murray Goulburn will continue to produce Woolworths’ private label butter and its mozzarella, a vastly smaller cheese category than cheddar.

It’s understood the supermarket giant was determined to keep the contract with an Australian-owned processor, leaving third player Canada’s Saputo, owner of Warrnambool Cheese and Butter, an unlikely tender winner.