Retailers and processors need to do more to build farmer confidence if they want to secure long-term UK milk supply, a DairyCo report has warned.

The message came as processors announced another round of cuts in the amount paid to farmers. First Milk said it was reducing its member price by 0.75ppl, while Milk Link said it was dropping the price by 1.75ppl. Many other manufacturers have announced cuts recently.

Milk prices should be set at a level that met the needs of dairy farmers as well as the expectations of buyers, said the report.

“To provide sufficient confidence to dairy farmers to expand and plan effectively for the future, communication in the industry needs to be improved,” it added. “Dairy farmers need to have clear messages from milk buyers about how much milk is required, of what constituent quality and when.”

Retrospective milk price changes by buyers quickly eroded farmers’ confidence, it claimed. If margins became tighter the larger, more progressive farmers would consider exiting the industry, which would hit national milk supply.

Although confidence had been boosted by higher farmgate prices in 2008, it was fast waning, it said.

However, more production from modern facilities and a predicted increase in replacement heifers from 2011 would help ease the current tight supply.

The replacements would boost a national milking herd reduced by poor fertility levels, TB and breeding decisions made in the past, it added, although the extent of the replacements would depend on farmers’ confidence to invest.

Milk Link chief executive Neil Kennedy defended its latest price cut. “The change reflects a weakening in returns from our core markets, where we are seeing consumers trading down and seeking out promotional offers,” he said. “It also reflects the impact of price cuts of 2ppl and above announced by our main raw milk customers in the liquid sector and the continuing decline in the dairy ingredients markets.”