Guaranteeing farmers recovery of their production costs would put the future of UK dairy at risk and flood the UK with cheap imports, processors have warned.

The claim - issued this week by Dairy UK, which represents the entire dairy supply chain but is most closely associated with the processing sector - came after Farmers for Action wrote to all processors on 1 August, demanding talks about farmers being paid “at least cost of production” for all their milk.

Several major retailers already run a ‘cost of production plus’ model for the liquid milk they buy. FFA wants this extended to all retailers and dairy products.

But Dairy UK director general Jim Begg said fixing farmgate milk prices in that way would seriously undermine the British dairy industry’s ability to compete internationally. “Raw material prices of any kind move in line with the balance of supply and demand and the marketplace,” he said. “Any deviation from that for non-market reasons instantly exposes you to a lack of competitiveness.”

Begg said the average milk price in Ireland - a key competitor to British dairy, particularly for cheese - was currently about 24p per litre, whereas UK campaigners wanted a cost of production price of roughly 30ppl. “On that basis, the UK would be £600 a tonne less competitive on cheese than Ireland,” Begg said. “We’d be flooded with imports overnight and you could forget any pretense at exports.”

Begg also reiterated processors’ concerns that the FFA letter constituted a call to fix prices illegally. “The competition implications of this letter are so obvious it beggars belief,” he said. The FFA did not respond to requests for comment.