Dairy farmers should be paid bonuses based on the cost of collecting their milk, according to one industry consultant.

John Allen of Kite Consulting, who admitted his idea might prove controversial, said:

“This should be treated as another efficiency bonus, rather than as a penalty, with farms closest to the market or a factory being paid a bonus because they cost less to service.”

Currently, two identical farms on the same milk contract receive the same milk price whether they are one mile from the market or 250, added Mr Allen, who reckoned transport costs varied from 0.7p/litre to in excess of 2p/litre across the country.

The bonus would reflect a farm’s proximity to market, pick-up flexibility and tanker access.

“All of these potentially increase the efficiency at which a processor operates, and some of the benefits should be passed back to farmers accordingly.”

Those unable to benefit would have to increase the value of their milk in other ways, like increasing output to win volume bonuses, or, ultimately, quit milk, he said.

Gwyn Jones, NFU dairy board chairman, said:

“Talking strictly business, this is a commercial reality.

But the question we have to ask is:

Do we value dairy farmers?

If the answer is yes then what do we do in those areas where production is more marginal?”

Although all of the milk buyers contacted by Farmers Weekly said transport costs were a huge issue, none were considering introducing cost reflective pricing.

A spokesman for processor Robert Wiseman Dairies said it tried to keep transport costs down by building ultra-efficient processing capacity in the heart of its milk fields.

“Penalising or incentivising farmers based on their geographic location is not something we are considering.”

Arthur Reeves at Dairy Crest said:

“We are making our milk contracts more transparent but this is a big step from where we are at the present.”

Mr Reeves said it would be unfair to penalise some farmers after encouraging them to join the business.

At Milk Link, Will Sanderson admitted haulage costs did depress the price paid by the co-op, but said:

“The co-operative ethos is that people share the benefits and share the risks.”

A spokesman at Dairy Farmers of Britain said the co-op tried to reduce haulage costs by working with other milk businesses when collecting milk.

It also offered a premium to members near London and in some parts of the Midlands.