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Fane Valley is to merge some parts of its business with Lakeland Dairies.

Fane Valley is based in Banbridge ,County Down, and employs more than 2,200 people.

Lakeland Dairies are based in Bailieboro, County Cavan, and employ almost 700 people.

The merger will only involve part of the business, Fane Valley Dairies, Fane Valley Stores and Fane Valley feeds. The company's meat and food processing sectors are not included.

Trevor Lockhart, chief executive of Fane Valley, said: "We'll be stronger together - and I am absolutely confident that this move will make better businesses, can deliver more competitive returns and can ensure the sustainability not just our farmers, but of our staff."

The first joint company will be in the agri-business sector and will be led by Fane Valley.

It will pool both of the societies' feed manufacturing, sales and stores activities.

Lakeland Dairies will be a partner and a shareholder in the business. It will be worth around £125m per year.

Lakeland Dairies will manage the merged dairy processing activities and operation.

Fane Valley will be a partner and shareholder.

In Northern Ireland, Fane Valley and Lakeland Dairies currently procure 580m litres of milk each year for processing into a wide range of value added dairy products and food ingredients, which are exported worldwide.

The move will create the second largest milk processor in Ireland behind Glanbia.

The turnover of the new venture is estimated to be about £480m pounds a year.

Michael Hanley, chief executive of Lakeland Dairies, said the move was driven by "common sense, a lot of trust between both parties and a recognition that farmers are entitled to get the best returns possible from the dairy markets".

"There was a recognition that to compete globally you need a certain level of scale and efficiencies to drive through the plants," he said.

Both co-operative societies will continue to operate on an independent basis outside of the joint ventures.

The possibility of a full merger has not been ruled out.

There are consultations taking place with staff. But both companies said there would be no job losses.