Milk prices are likely to fall next spring, leaving only a small window of opportunity for dairy farmers to improve their businesses in the face of rising costs.

John Allen, managing partner at Kite Consulting, told farmers at a meeting in Chard, Somerset, this week that real production costs had risen by 0.74p/litre in the year to March 2005.

And they were likely to rise by another 1.04p/litre next year as energy prices soared.

Productivity was also rising, but milk prices were likely to fall next year, warned Mr Allen.

“If you don’t do something in the current year, you will see things get worse in the spring.”

Farmers could use their single farm payment to restructure their business, but should not view expansion as an easy way to cut costs, he said.

“If you go from 200 cows to 400 cows I guarantee your costs will rise for a year or so.”

Instead, farmers should concentrate on improving their efficiency as far as possible before expanding.

The top 25% of Kite’s clients were making 2.48p/litre more profit than the average group, said Mr Allen.

“Those who are average are struggling, but the top 25% are making enough money to reinvest.

However, the difference between these people is very little. A fraction of a penny improvement in every area really tots up.”