Northern Foods takes Italian off the menu

The firm said it had started talks with the 730 workers at Fenland Foods in Lincolnshire and expects to lay them off in August. Northern said it had held discussions with M&S about producing moreprofitable lines in the factory, which makes the retailer's best-selling chilled lasagne, but had not managed to reach any agreement.

M&S has been accused of acting tough with suppliers in refusing to let them pass on rapidly rising food costs through higher retail prices.

Northern chief executive Stefan Bardon said: "Having discussed a wide variety of possibilities - some of them quite exciting - there wasn't one where we could generate a sustainable cashflow for our shareholders."

The firm said the ready meals for M&S had accounted for £45 million of sales a year but the factory only broke even last year. It added that it hoped to find new profitable customers for Fenland. But a spokeswoman warned that even if it found a new customer, it could take some time to switch production. The closure is likely to cost £5 million.

M&S said it would find a new supplier of chilled lasagne and spaghetti bolognese, and added that Northern remained a key supplier of other foods.