First Milk is calling on dairy farmers to be paid a higher price that allows the industry not just to subsist but to grow.

A report from the farmer-owned co-op claims producers needed to be paid 29.64ppl to be profitable. Farmers currently get 25-27ppl depending on the retailer supplied.

The report by Promar International reached the figure by factoring in farmers' income, rising costs of production and a profit margin of 10% to allow them to grow their businesses by investing in facilities and replacing old equipment.

The 10% margin has been included to give farmers the chance to do more than just break even, and would offer an incentive for younger talent to enter the business, said a First Milk spokesman.

The study has been issued at a crucial time for dairy farmers, with Tesco assessing its price for the year. Its decision this month will influence prices paid by other chains to processors.

Although prices paid by retailers have risen dramatically in the past 12 months, so have farmers' production costs as a result of higher feed, fertiliser and fuel costs.

Consumers have also felt the impact, with the price of liquid milk soaring 20% to £1.34 for a four-pint pack over the same period, according to the MDC.

Low prices over the past decade have driven the dairy industry to the brink. In the past five years the national dairy herd has fallen 11% to 250,000 and total milk output has fallen 6% or by more than 800 million litres. Farmer numbers have been falling at 6.5% per year.

"Rising costs, particularly in relation to energy and regulation, are common throughout the dairy supply chain, and tackling these requires a joined-up approach," said Dairy UK director general Jim Begg.

However, he added, the dairy sector is enjoying a huge surge in demand. "The industry has shown itself to be innovative and market-focused, and well-placed to take advantage of strong global demand."