It will affect staff as well.

Premier Foods has reduced its number of suppliers dramatically in the last 12 months.

In 2013 it made a similar approach to some of its suppliers china virtual office.

The practice of pay to stay is not unheard of in manufacturing and retail.

After a competition inquiry, tighter rules were issued for the supermarkets under the Groceries' Code.

But that applies to the relationship between supermarkets and suppliers, not manufacturers.

Liesl Smith, from the Federation of Small Businesses, said: "This is the first time that we have ever seen anything so blatant... in this very direct way before.

"We think it is unjust, it is not competitive and it is not helping the supply chain.

"Premier Foods certainly don't value their suppliers, it's crippling small businesses.

"It's not just going to affect the business owners, it will affect staff as well."
'Support crucialSim
'

Premier Foods told Newsnight: "We launched our 'invest for growth' programme in July last year as part of a broader initiative to reduce complexity in support of plans to help turnaround the business.

"This included a commitment to halve the number of our suppliers and develop more strategic partnerships focused on mutual growth.

"The programme requires our suppliers to make an annual investment to help fund our growth plans.
Apples The company uses more than 1,000 suppliers

"In return, our suppliers benefit from opportunities to secure a larger slice of our current business.

"They also stand to gain as our business grows in the future."

It added: "In the current challenging environment, the support of all of our suppliers is crucial hair loss treatment.