British dairy farmers should prepare for future opportunities despite facing the most difficult economic circumstances for a generation, according to Dairy UK.

The milk industry body said producers, along with all other aspects of the dairy supply chain, had grounds for “cautious optimism”, despite depressed consumer spending and rising costs.

“On farms, higher costs have eroded a lot of the benefit of price increases and with it the rise in confidence seen in 2010,” Dairy UK vice-chairman Neil Kennedy told the organisation’s annual dinner in London on Thursday (30 June). “[But] the global supply-demand balance is in our favour,” he said.

“Commodity markets were strong over the past year and farm gate prices have been on an upward trend. As an industry, we are also seeing increased investment.”

Mr Kennedy said the environment and nutrition would be areas the industry needed to focus on in the coming year and insisted there was much to be positive about across the supply chain.

Farm minister Jim Paice agreed that despite the view that the UK’s dairy industry was “in the doldrums” there were opportunities available.

“This is an iconic industry and had potential to continue to grow,” he told the gathered industry representatives.

He said the industry needed to look at the barriers stopping it from developing products and increasing trade overseas.

“We are some of the most efficient producers of milk in the UK, yet we struggle. We need to ask why,” he added.

Mr Paice said the UK would consult on European Parliament plans for EU-wide mandatory milk contracts, but stressed that the government did not want to legislate “until all else has failed”.

“I want a code of practice to rule out what’s unacceptable,” he said. “But it should be voluntary and see risks being shared across the supply chain.”