But the fact remains that most producers are at best breaking even. This is made abundantly clear in the submission from First Milk to the Competition Commission for its inquiry into supermarket margins.

The well-researched document states: "It is estimated that the average dairy farmer in the UK is scheduled to make a loss of 2.08p on every litre of milk produced in 2007-8. This figure excludes the single farm payment.

"With this analysis showing five loss-making years out of the last six years of production, it would appear that farmers who have continued to milk cows are using their SFP to subsidise their dairy income."

Detailed costings, based on a survey of more than 350 dairy farms in England and Wales, make for sombre reading: in the current review, which includes a small element for calf sales and a deduction for herd replacement charges, the livestock output was just 16.65p per litre. That figure is marginally higher than five years ago, reflecting the hard work farmers have put in to become more efficient.

However, variable costs - chiefly feeds and forage charges - have increased by 1.41p per litre since 2002, and fixed costs and other overheads have risen significantly. Meanwhile, milk prices have risen by only 1.56p per litre.

First Milk, not surprisingly given the fact that it is a farmer-owned business, reckons that producers are over the long term better served by selling to such an organisation, which can make adjustments according to the prevailing market circumstances.

Source: Scotsman