The price of organic milk could rise by as much as 16p for four pints this year if production costs continue to soar, a new report has warned.

Each 1ppl increase in the farmgate price would add 3.2p to the price of a typical price of a four pint, according to the Organic Milk Suppliers Co-operative (OMSCo) report. If feed price and other cost inflation were to add 5ppl to farmers' production costs in the next 12 months, as some analysts predict, that would push the cost of a four-pint of organic milk up from £1.64 to £1.80.

However, the price rises were unlikely to damage sales, claimed OMSCo, citing research showing many consumers already overestimated the cost of organic milk.

Price rises were also necessary to encourage more dairy famers to convert to organic production and help meet predicted market growth, OMSCo said. A key challenge for the dairy industry was to restore the economic attractiveness of organic production.

While two years ago organic feeds cost 30% more than non-organic, they are now 80% more, but farmgate prices have only risen at the same rate as for conventional products, making organic production less attractive to farmers.

"Confidence in non-organic markets is strong, and the relentless rise in relative cost of organic production means the organic farmgate premium will need to continue growing in the year ahead if like-for-like output is to be maintained and sufficient new converters attracted," the report says.

Demand for organic dairy products would rise 10% per year over the next three years, OMSCo predicted. The organic cheese market was expected to nearly double to 101 million litres by volume by 2011, while milk was set to increase from 269 to 312 million litres.

In the past two weeks supermarkets have raised the price of conventional milk by 10p to £1.44 for four pints.

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