Paice, who has been the Conservative MP for South East Cambridgeshire since 1987, announced in March that he would stand down at the 2015 UK general election. He joined Westminster’s Scottish affairs committee earlier this year.
He succeeds Bill Mustoe, who will retire at the co-op’s annual general meeting on 31 October.
Mustoe said: “I am convinced that he will bring valuable skills to First Milk. From our meetings with him, he has demonstrated a detailed understanding of the dairy sector, very strong communication skills and a considerable network of contacts.
“Equally importantly for our farmer members, Jim has a deep understanding and empathy for farming. As a former minister, he brings considerable knowledge and experience of not only the domestic market, but also the international dynamics of the dairy industry.
“He has been a champion for farmers at Westminster for over 25 years and we now look forward to him being a champion for First Milk farmers.”
First Milk employs 670 staff at eight sites in Scotland, England and Wales and turns over about £600 million a year.
Nigel Miller, president of the National Farmers’ Union of Scotland, said: “This is a very-positive announcement and comes at crucial time for the Scottish and UK dairy sector.
“Paice will bring tremendous energy, farming knowledge and parliamentary experience and his engagement with the industry in drawing up the code of practice for milk contracts was invaluable in striking a deal between farmers and processors.”