Dairy farming may have reached a crossroads for crucial on-farm investment, according to the Milk Development Council’s annual Farmer Intentions Survey.

Results from 682 UK dairy farms questioned showed the trend towards more litres of production being concentrated in fewer hands has accelerated over the past year.

The UK’s decline in milk output is set to continue with a predicted 3% drop to about 13.2bn litres by next March, said MDC chief economist Ken Boyns.

The results suggested a fall in production of around 400m litres by the 2007-08 quota year, he added.

“There are more farmers leaving the industry and not enough farmers increasing production.”

Of the 24% of farmers who were not hitting quota, one in five cited lower cow numbers or the purchase of extra quota as the reason.

Expansion

Farms producing more than 750,000 litres a year were found to be more open to expansion, while smaller dairy farms were more likely to cease production.

Overall, more than a quarter of dairy farmers said they planned to raise production in the next two years – up a little on last year.

Most were not planning to spend more than £100,000 and the majority were either young farmers, dairy-only or producing more than a million litres a year, Mr Boyns said.

At the other end of the scale, 14% of farmers planned to leave dairying altogether; also a modest increase on the year.

In between, nearly three-quarters of farmers said they planned to invest less than £25,000 on farm in the next five years – mostly on general maintenance.

And some 70% admitted that they would treat the single farm payment either as farm income or invest it in milk production.

NFU dairy board chairman Gwyn Jones said the rate of exit could be even higher.

“Once people have had a year or two of putting the single farm payment into the bank, they’ll decide it’s not worth it.

When you get the money anyway, why keep a business going which is not able to wash its face?”

For the first time, the MDC survey also asked farmers what would happen if their milk price fell by 2p/litre.

Exactly 37% said they would be forced to leave dairying.

But an identical proportion thought they could still turn a profit, with one in six of all those questioned not having to change their dairy system at all to do that.

sam.fortescue@rbi.co.uk