The future for UK milk production is positive, but dairy farmers urgently need contracts that give them a fair return and allow them the confidence to re-invest to manage additional environmental legislation, says the NFU.

Speaking at the Dairy UK conference at Stoneleigh, NFU chief economist Carmen Suarez told farmers, processors and milk buyers that the industry remained in a fragile condition after years where producers “have been paid below the cost of production”.

On average, dairy farmers faced the prospect of having to find an extra £50,000 to invest in slurry storage ahead of forthcoming Nitrate Vulnerable Zone legislation, and further threats that IPPC pollution rules could be extended to the dairy sector.

However, global dairy consumption was expected to grow up to 2010, with figures from the Organisation for Economic Co-operation and Development suggesting China’s consumption could rise by 10%. EU consumption was predicted to rise by a more modest 1%, and would be mostly in former eastern-bloc countries.

However, the worsening global financial situation meant consumers were re-considering their spending on food products and there was a potential threat to premium-priced products like locally branded, fair-trade or organic milk.

In theory, rising commodity prices should help provide a price-floor for domestic dairy products, Miss Suarez said. But EU policymakers may choose to remove price support as world prices rose, as they had in the arable sector, she added.

Factor like these, coupled with the forthcoming end to the single farm payment regime in 2013 added to the immense volatility facing the British dairy farmer.

“Contracts are the NFU’s preferred instrument to help manage this volatility. If we want to have [a dairy industry] in the UK, we have to give certainty to those people who have to find £50,000 to meet NVZ rules.

“Confidence is the crucial factor behind those investment decisions and it takes time to build that confidence. Whether we can meet or 14bn-litre quota is not the measurement of success – for me it’s whether dairy farmers can make a living.”