The Dairy Coalition has warned buyers, processors and retailers 'must commit to British farmers' to deliver better market returns as recent reports show a significant drop in incomes.
The coalition, which includes the NFU, the Tenant Farmers' Association and the FFA met at Stoneleigh today to discuss market issues and future strategy.
Lower prices, falling production and soaring input costs are contributing to falling profitability in the dairy sector. Senior partner at rural accountants Old Mill, Mike Butler, said incomes had slashed last year and the outlook remained bleak.
"While clients with March and June year ends managed to increase profits compared to the previous year, those with September year ends averaged a 12.8% drop in overall profits, to around £65,000 a herd" he said.
"And that trend looks set to continue. The potent cocktail of horrendous weather, milk prices suppressed by processors and retailers, and the devastating implications from escalating TB outbreaks mean only one thing for UK dairy farmers when it comes to assessing the financial prospects for 2012/13."
Clarke Willis, AF Group CEO said: "The rising cost of fuel has affected all sectors and rising animal feed prices have caused significant increases in production costs for livestock and dairy farmers."
Last month, the National Farmers' Union said the UK's dairy industry will 'fall behind in terms of scale and efficiency' if it failed to keep up with global growth.
In the short term, the coalition has called for urgent and meaningful farm gate price rises for April 1, to ensure a realistic market price.
Challenges of poor weather, infertility and feed shortages mean that farmers can only respond to demand for more milk if they are paid a proper price.
"Yesterday's Fonterra auction result saw significant price rises in key commodities such as cheese, butter and milk powders, with all products up 14.8 per cent on the previous month. This clearly demonstrates that globally, demand is strong and supplies are tight" said NFU dairy board chairman, Mansel Raymond.
"Yet we’re still hearing that crippling deals being done in the domestic cheese and liquid markets are putting milk prices under pressure.
"The average UK farm gate milk price for January was exactly 30ppl, this masks the range of prices being paid from less than 27ppl to over 33ppl, which is barely a penny ahead of this time last year. For UK dairy production to have a sustainable future, the only way these prices can possibly go is up."
Farmers For Action chairman, David Handley said: "I'm hugely frustrated by the apparent lack of traction in the UK market.
"We know our milk is valuable and in short supply, we know our consumer, the British public want to support British dairy, so why are we still failing to realise a sustainable price?
"We need action by milk buyers now. FFA and the rest of the coalition have already called for complete transparency in country of origin labelling of dairy products. Imported cheddar, without clear labelling undercutting British prices is unacceptable.
NFUS milk committee chairman, Gary Mitchell said: "There is plenty that milk buyers can do right now to help safeguard a sustainable production base. Starting with a sustainable price, we need complete sign up to the Voluntary Code. Strong market demand signals are being blocked by lousy contracts, poor labelling and an apparent lack of commitment to British by some important retail and food service businesses."
