DAIRY-ONLY farms now need to produce more than one million litres of milk per year to remain viable, according to Neil Blackburn at Kite Consulting.

The finding is based on a survey of Kite clients, which showed that dairy farmers have increased their herd sizes and ramped up milk production over the past three years.

The average farm has added 31 animals to its dairy herd in the 36 months to September, boosting annual production by 370,000 litres.

The top 10% of farms surveyed have put on an extra 26 animals since Sept 2002, pushing them to an average of 212 head producing over 2m litres each year.

Average herds generate a margin after feed of almost £230,000 – up by £23,000 on 2003 and by £51,000 since 2001. This works out at an average margin of nearly 15p/litre.

But top 10% performers make almost a penny more per litre from a £332,000 margin after feed purchased.

Farmers‘ profit margins after all other costs have been deducted are not published by Kite, to protect their interests from rapacious buyers.

But Mr Blackburn said that profit per litre ranged from a loss in some cases to a gain which “does not reflect the effort needed” to produce the milk in others.

“If you want to maintain profits, you‘ve got to be focused on the margins,” he said.

“With many farms being unable to cut costs further, the only recourse is to produce more milk.

“The indication from our figures is that the big farms are doing this and are continuing to expand.”

There has been little quota trading since Christmas, but a thin market has seen prices for leased 4% quota rise to around 6.9p/litre.