Many tenant dairy farmers are on the brink of quitting milk production after recent price cuts by processors.

With many units facing falling returns and huge capital investment, the latest price cuts could be last straw, says the Tenant Farmers Association. “Confidence in the dairy sector is at a low ebb, and these price reductions will only make matters worse,” said vice-chairman Stephen Wyrill.

“We are losing 5% of our dairy farmers every year, and in historical terms, milk production is at its lowest ever point. It is simply unsustainable to continue cutting the price received by farmers – it will only accelerate the extent to which they leave the industry.”

Milk prices had fallen by about 5p/litre since September, yet retail prices had risen by 5p/litre over the same period, said Mr Wyrill. “There is clear evidence that retail margins have grown significantly at the expense of farm level margins. Retailers have gained an extra 10p/litre, amounting to £150,000 per dairy farmer.”

Every 1p/litre reduction equated to a £10,000 loss for farmers producing 1m litres a year, he said. “It is quite clear retailers are only concerned about the short term. If they were at all concerned for the long term, they would be ensuring that there was a fair return to all parties in the dairy supply chain.”

Mr Wyrill also called for more flexible contracts to enable farmers to change processors more easily. “If farmers were freer to move around, there would be more competition.” And he urged the government to introduce grants to help farmers meet stringent new Nitrate Vulnerable Zone regulations.

“Many tenanted holdings have seen little investment over the past 25 years and are in desperate need of modernisation,” he said. On top of this, producers were being forced to pay about £50,000 – or 3p/litre – on extra slurry storage to meet the NVZ rules. “It is disgraceful that the government has not seen fit to provide any assistance to farmers in meeting the extra cost involved.”

A producer in North Yorkshire, who asked not to be named, said he and two neighbouring farmers were seriously considering quitting the dairy industry. “It just isn’t sustainable,” he said. A former Dairy Farmers of Britain supplier, he was now receiving just 15p/litre – £70,000 a year less than pre-Christmas levels – and faced a £60,000 investment to meet NVZ regulations.

“We have a good herd and an efficient way of producing milk. We never intended to go out, but we’re just going to have to bite the bullet and do something else.” He said he needed 22p/litre to be sustainable, and with almost 2000 farmers affected by the demise of Dairy Farmers of Britain and 44% of all land tenanted, the industry was ready to fall “like a pack of cards”.