Brownes has scored a major coup in WA's milk wars by winning the contract to supply supermarket heavyweight Woolworths away from Lion.
The deal will see a big fall in the volume of milk processed at Lion's Bentley plant. Lion said it was disappointed and considering the implications.
Industry sources estimate the contract to supply the Woolworths private label is worth about $20 million a year for 25 million litres of milk.
Brownes will supply Woolworths from July until the end of 2021 under the terms of the new contract.
The deal continues a big shake up in the WA dairy industry after Italian giant Parmalat sealed a $120 million deal to acquire Harvey Fresh, which has the contract to supply Coles.
It is not known whether the Coles contract with Harvey Fresh includes change of control provisions.
Lion has been caught short of milk in WA as demand rises and production falls, mostly because of poor returns to dairy farmers. It has regularly trucked in milk from South Australia in recent years after battling Brownes and Harvey Fresh for supply.
Milk production in WA fell from 337.7 million litres in 2011-12 to 336.6 million litres in 2012-13 and was down again in the first half of the financial year.
Brownes managing director Ben Purcell said the 128-year-old company would focus on growing milk production through its ties with local dairy farmers.
"We are thrilled that this deal means that fresh WA milk from the South-West will be used instead of imported, Eastern States milk," Mr Purcell said. "That can only be good for the sustainability of our industry. These contracts mean local farmers will supply milk to West Australian families."
Woolworths is expected to reveal details of its Australian milk supply contracts today.
Lion said it had also lost its Victorian contract but had held South Australian, Tasmanian and the Northern Territory contracts.
Woolworths managing director of supermarkets Tjeerd Jegen said the new contracts were a win for farmers, a win for customers and a win for WA.