Strong dairy prices on the global commodities markets were not reflected in prices paid to UK farmers during 2010/11, a report from DairyCo has claimed.

Although the AMPE, the industry indicator of butter and milk powder commodities prices, has risen 31% during the past milk year, farmgate milk prices have increased just 5%, DairyCo said. DairyCo analyst Patty Clayton said the gap was cause for "great concern". "The key issue is that conditions within the supply chain do not disadvantage farmers. It is vital that the industry gains an understanding of how prices adjust along the supply chain," she said.

DairyCo's report also claimed the liquid milk market had seen a "year of distinct halves" last year, with the first essentially in line with margins in the 2009/10 year, but processors then getting squeezed when the supermarket price war "dramatically ­reduced selling prices".