MILK PRICES could fall sharply as producers leave the industry, according to the latest report on the effects of CAP reform for the Dairy Supply Chain Forum.

Report author David Colman, from the University of Manchester, said the UK could fall 1bn litres below quota by 2007/08.

That is if prices fall in line with the intervention milk price equivalent as the EU progressively cuts intervention prices for butter and skimmed milk powder.

NFU dairy board chairman Gwyn Jones said: “The messages coming out of this very important piece of work are clear.

“If the dairy industry wants to avoid a severe and damaging long-term decline in milk supply, dairy farmers must receive remunerative milk prices.

“The NFU has consistently argued that producers will and must treat the new single farm payment as decoupled and base their production decisions on the potential for profit.

“If the profit isn’t there they will simply not produce,” he added.

Jim Begg, director general of Dairy UK, said: “This emphasises the importance of having as much stability as possible in dairy product markets, and the European Commission will have an important role to play.”

andrew.shirley@rbi.co.uk