Although milk prices paid to farmers across the UK have risen by 40% over the past year to between 25p-27p per litre, there are still warnings that milk production will continue to decline because of lack of profitability. A recent study by Promar International for dairy farmer co-op First Milk estimated that farmers needed an average milk price of 29.6ppl to stabilise the industry and allow rebuilding after recent production cuts. Kite Consulting has predicted that dairy herd numbers would decline a further 10% by 2012 and claimed that the remaining farmers would not be able to expand production enough to compensate. Kite indicated total UK milk output would continue to fall in the next four years. It also warned that milk production would drift more towards spring and summer, when costs were lower, and fall faster in autumn and early winter when UK milk output was already dangerously low . Latest milk output trends from the Rural Payments Agency also confirm the downward trend of production, with supplies falling 1.9% in February. For the 12 months to the end of March it is estimated UK output will fall by 300 million litres and will be below quota for the fourth year running. In effect, the UK is now getting short of milk and this is reflected in the competition between milk processors for supplies. This is creating a dilemma for buyers who have faced some decline in market prices for commodity dairy products, particularly milk and whey powders, since the turn of the year. Normally this would now be leading to some cuts in milk prices but processors are keen to avoid creating further losses of confidence among milk producers given the fragile state of the industry. Michael Bessey

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