The report concludes that the average cost of milk production has increased by 16.43%.

RABDF chairman Lyndon Edwards said: "The dairy sector faces an unsustainable situation. The average farmgate milk price in 2006/07 was 17.90ppl, whilst our work shows that the average cost of production during the same period was 21.32ppl without taking into account the exceptional costs farmers were faced with or providing any scope for essential business re-investment."

RABDF and NFU carried out a similar exercise 12 months ago which concluded that farmers were losing just over 1.5ppl.

Mr Edwards said: "The increasing cost trend will continue in the forthcoming year and farmers will also be faced with substantial additional regulatory costs, such as the impact of NVZ legislation.

"We believe that it is imperative that the supply chain acknowledges the significance of our findings and swiftly takes action to counteract the dire situation British dairy farmers are contending with.

"As far as the retail sector is concerned, Tesco's recent announcement to offer direct producer contracts is a welcome boost to confidence, and it is hoped that it will have positive connotations for many, both directly and indirectly.

"However, these direct contracts offered are only available to limited numbers of producers, therefore it is of paramount importance that the remaining retailers and other parts of the supply chain follow suit in order to ensure the long term viability of the whole dairy industry."

NFU dairy board chairman Gwyn Jones said: "This report highlights what we have known all along - that despite being among the most efficient milk producers in Europe our farmers are facing a bleak future. The gap between what they are paid for their milk compared to what it costs them to produce it is widening.

Source: ic Teesside.co.uk