Milk production will plummet by 900 million litres in the next two years if the results of a study into farmers' intentions are to be believed.

The MDC's annual intentions survey found 16% of dairy farmers intended to quit milk production, slashing 7% from national milk production. With milk output in the 2006/07 milk year down to about 13.6 billion litres, the exodus could drag production down to 12.7 billion litres.

Gwyn Jones, NFU dairy board chairman, said: "I fear processors are sleepwalking into a position where a billion litres of milk or more could easily be lost."

Senior MDC economist Helen Eustace said milk buyers and retailers had to be clear about their milk supply needs over the coming years. "If they are happy to lose a portion of domestic supply, then this isn't an issue. But if they want to maintain current supply levels into the future, they must be clear about this now so farmers can have the confidence to reinvest."

This year's survey paints a bleaker picture than one year ago. This time one in five farmers said they planned to increase milk production, down from one in four last year. Just 3% said they would plough more than £100,000 into their farms compared with 9% a year ago.

"This really highlights the impact low margins are having," said Eustace.

"Normally, the most efficient farmers would be expanding to replace the production lost from those leaving, but even these are considering their future."

Some 12% of those farmers producing more than 1.5 million litres of milk annually are planning to leave, the survey found.

Meanwhile, significant numbers of farmers thought they would have trouble paying for the changes required under the new nitrates regulation, which will force them to cut stocking densities and build new slurry storage facilities.

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