Milk processors in the North are threatening to take action in European courts to stop a National Dairy Council (NDC) campaign which they argue is anti-competitive and designed to cut them out of the market in the Republic.

Since 2009 the farmer-funded NDC has been running a trade mark scheme, which, heavily backed by an advert campaign featuring Munster and Ireland rugby star, Paul O'Connell, is designed to encourage consumers to buy "locally" produced milk.

Only milk produced and processed in the Republic qualifies to carry the trade mark, which cuts out suppliers from the North, who say that it is effectively squeezing them out of the market in the South.

As a consequence, Dr David Dobbin, chief executive of Dale Farm and United Dairies, one of the North's bigger processors, confirmed yesterday that the Dairy Council Northern Ireland was "in the process of launching a legal case with the EU competition commission" alleging that the NDC scheme is a breach of single-market rules.

The Dairy Council Northern Ireland has put its concerns to the NDC itself, Minister for Agriculture Simon Coveney, and his opposite number in Westminster Owen Paterson.

Dale Farm recently lost the contract to supply private-label milk to Superquinn, which is being merged with Super Valu, which is supplied by Donegal-based Aurivo. The grocery chain's owner, Musgrave, tendered for suppliers that qualified for the NDC mark.

Sources estimate that suppliers in the North may have lost £50 million in the four years since the campaign began.

Dr Dobbin, a former chairman of cross-Border trade body Intertrade Ireland, said yesterday he was disappointed to see barriers being erected by the dairy industry.

He added that it was high-risk as it could spark reciprocal action from the dairy industry in Britain, a key market for exports of products such as cheese and butter.

The industry in the North is also concerned that the NDC and Irish Farmers’ Association have been jointly putting pressure on retailers to adopt the trade mark. Both organisations deny this.

NDC chief executive Zoe Kavanagh said the trade mark scheme was purely a marketing campaign launched in response to a study showing that consumers were concerned about the origin of their milk as well as its price.

She denied it was designed to limit competition from the North, and said the industry there has maintained its share of the market in the Republic.