Arla said that 44 out of 325 staff at its Akafa factory in Svenstrup would be made redundant this autumn.
The move follows Arla's decision to stop producing a number of speciality products at the factory by the end of 2005. Some production will be transferred while some will be ceased entirely.
The factory will now focus on producing more retail packed, full-cream milk powder, especially for the Asian market. Production will also become more automated.
"We have to continually take a close look at our production," said factory director Niels Kjærsgaard. "As a result, we have decided to discontinue a number of products, but begin production of a number of new full-cream milk powder products that require less manpower."
Shares in Arla's UK subsidiary fell sharply a couple of weeks ago after the dairy processor warned that rising costs in raw materials and energy, as well as retailer price cuts, could hit profits hard in 2005.
The whole company has also warned that the European Union's cuts in agricultural export subsidies would harm earnings from butter exports this year.
The EU announced last year that it planned to reduce its intervention price for butter by 25 per cent over four years.
Subsidies for other dairy ingredients will also be cut further, presenting a challenge to dairy processors like Arla.
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.
Arla said the production changes to its Akafa factory were part of a rationalisation process aimed at improving the price it paid farmers for their milk.
But, this may be hard to achieve in the short term considering the margin pressure in the dairy industry. Arla's UK subsidiary saw underlying profits for the six months up to 31 March slip from £23 to £22m.
Arla UK was also criticised by Britain's National Farmers' Union at the end of May for cutting its 'farmgate' milk price in June. The business, one of Britain's top three dairy processors alongside Dairy Crest and Robert Wiseman, is currently merging with the UK's Express Dairies.