The biggest U.S. dairy farming cooperative struck a $425 million deal to buy dozens of plants from bankrupt milk processor Dean Foods Co., in a deal executives said would preserve jobs and markets for farmers’ milk.

The deal, which was proposed by Dairy Farmers of America, requires approval of the bankruptcy court and the U.S. Department of Justice.

If consummated, it would see the Kansas City, Kan., agricultural cooperative take over the bulk of Dean’s plants, following the top U.S. milk company’s bankruptcy filing in November.

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Dean’s DFODQ, +2.29% bankruptcy followed a yearslong decline in sales of fluid milk, the Dallas company’s main business. Bottled water, fruit juices and plant-based milk alternatives have crowded out milk cartons in grocery store beverage cases, pressuring the milk business. Dean also struggled as grocery sellers like Walmart Inc. WMT, +0.38% and Kroger Co. KR, -1.40% opened their own milk-bottling plants, expanding sales of store-brand milk that is often priced far below branded milk from processors like Dean.

Pressures are mounting on the U.S. milk sector beyond Dean. Borden Dairy Co., another Texas dairy company, filed for bankruptcy in January, also blaming falling milk consumption and retailers’ investment in bargain-priced milk. Battling low prices, thousands of dairy farmers have closed their milking parlors in recent years, according to the U.S. Department of Agriculture.

An expanded version of this report appears at WSJ.com.

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