The NFU and the Royal Association of British Dairy Farmers have joined forces to highlight dairy farmers’ true costs of production, which they hope will be used to negotiate better ex-farm prices.

In a new document, British Milk – What Price 2006?, the two organisations have used independent research to demonstrate the gap between costs and income.

RABDF chief executive Nick Everington said:

“The report shows average production costs stand at just over 20p/litre.

This compares with an average producer price in January 2006 of just 18.7p/litre.”

The report will be circulated to retailers and processors, and dairy farmers negotiating milk contracts are being encouraged to use it to help their case.

“We’re being transparent with our costings – and we would expect the same transparency from processors and retailers.

Current prices leave no room for re-investment – vital for the sustainability of dairy businesses,” Mr Everington said.

According to the report, producers had seen a 25% increase in energy bills, driven by higher gas and oil prices.

These had also ramped up fertiliser costs from £105/t to £160/t.

Herd replacement costs had climbed nearly 10% since 2003 as the cost of rearing calves had risen.

Dairy farmers were also facing pressure from rising interest charges, estimated between 0.5p/litre and 0.8p/litre.

“These figures do not include single farm payment income, and they shouldn’t.

It’s there as a reward for a land management contract, not to prop up dairy businesses.

“This underlines the need for an immediate rise in farmgate milk prices,” Mr Everington said.

NFU dairy board chairman Gwyn Jones said the report supported the NFU’s Vision for the Dairy Industry.

“We’re calling for direct contracts for dairy farmers, a better understanding of the costs they face, so there is a better chance of passing these costs up the supply chain.”

Recent retailer cuts to on-the-shelf milk prices had only compounded the situation, he added.

“Milk is already cheap enough – we don’t want to see our product undervalued.

We expect the industry to acknowledge what is happening to dairy farmers.”

“No one should make the mistake that fewer producers will mean a more efficient industry.

Both large and small farmers are leaving as their confidence is sapped and they feel undervalued.”

Mr Jones called on other retailers to follow Asda’s recent move to declare the price its farmers received.

“We want to see Tesco, Sainsbury’s and Morrisons have direct contracts with producers and reward them better for their milk.”

Arthur Reeves, milk purchasing director at Dairy Crest, said:

“We accept that costs of production have increased and that ex-farm milk prices are not that much different.

So far, we haven’t been able to recover that difference from the marketplace.

“We are looking for new ways to get more out of milk and reward farmers.”

A spokeswoman for Tesco said:

“We buy milk from processors, not directly from farmers, and cannot dictate what processors pay farmers.

The farmers who supply our processors are paid prices at the top end of the farmgate milk price.”

No one from Sainsbury’s or Morrisons was available for comment.

ian.ashbridge@rbi.co.uk