Arla said it would close its Samden milk powder plant in Denmark at the end of June next year as part of a cost savings programme.
"We now have the capacity to handle the raw product at the other plants, which means that we cannot justify keeping Samden in operation," said Lars Dalsgaard, production director at Arla Foods Ingredients.
Some of Samden's production, such as whey, will be shifted to other factories.
The move comes barely more than a month after Arla announced it would cut 44 out of 325 staff and stop production of a number of products at its Akafa factory in Denmark by the end of 2005.
The factory will focus on producing more retail packed, full-cream milk powder for the Asian market, where Arla recently signed a joint-venture supply deal with China's leading dairy group.
Increased cost pressures have hit Arla in recent months, and the firm said recently that European Union's cuts in agricultural export subsidies would harm earnings from butter exports this year.
Subsidies for other dairy ingredients are also being cut under the EU's Common Agricultural Policy reforms, presenting a challenge to dairy processors like Arla with commodity businesses.
In June, the EU Commission's Milk Management Committee voted to slash refunds on whole milk powder by 16.8 per cent, from €65 to €54 per 100kg, and skimmed milk powder by around 46 per cent, €28 to €15 per 100kg.
"We're all under pressure to optimise and make operations more efficient," said Dalsgaard.
The EU's CAP reforms, agreed in 2003, pledged to cut the intervention, or guaranteed minimum, price for butter exports outside the bloc by 25 per cent over four years. The reforms also pledged to chop skimmed milk powder prices by 15 per cent.
When Samden closes, Arla will have four milk powder factories in Denmark - Hoco, DP, Akafa and Arinco. The group also operates factories in Visby, Götene and Vimmerby in Sweden.