Stark choice between higher prices for farmers or a further drop in milk output April is decision time for UK dairy companies in that urgent decisions now have to be made on the milk prices to be paid to farmers in the coming months. Farmers are pressing for an increase to bridge the gap between current prices, which are between 18p and 18.5p per litre, and the claimed average cost of producing milk of between 20p and 21p per litre. This apparent loss making situation, which has reflected in a drop in national milk output of nearly 4% in the year to March, is now being aggravated by the current drop in milking cows numbers due to the foot and mouth crisis. This has led so far to the slaughter of an estimated 2% of the national milking herd and can only get worse. Dairy companies are desperate to avoid any further serious decline in milk availability but paying out more for milk is clearly difficult to reconcile with dairy markets which are not currently yielding higher prices. In fact the trend of butter and milk powder prices so far this year is downwards and cheese market returns now appear to have stabilised after rising in January and February. Difficult negotiations are now taking place between dairy companies and the major multiples on the possibility of an increase in liquid milk prices, for which there is some sympathy among retailers provided the increases are all passed back to the farmers. The stark choice for dairy companies is, therefore, between higher prices for farmers at the risk of lower dairy margins or a further significant drop in milk output which itself would hit dairy operations. {{M/E CANNED GOODS }}